Business Accounting Exam Review
Course Introduction
Business Accounting introduces students to the principles and practices of accounting within the context of modern business operations. It covers foundational topics such as financial statement preparation, the accounting cycle, recording of transactions, and interpretation of financial data. The course also explores the roles of internal controls, ethical decision-making, and regulatory frameworks in maintaining accurate financial records. Through real-world examples and practical exercises, students develop skills in analyzing financial information for effective management decision-making and strategic planning.
Recommended Textbook
Accounting 9th Global Edition by Charles T. Horngren
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24 Chapters
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3900 Flashcards
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Chapter 1: Accounting and the Business Environment
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Sample Questions
Q1) Which of the following amounts appears on both the statement of owner's equity and the balance sheet?
A)Ending capital
B)Total assets
C)Total revenues
D)Net income
Answer: A
Q2) Land was originally purchased for $20,000. It is sold for $20,000 in cash. How does the sale affect the accounting equation?
A)Assets increase $20,000; liabilities decrease $20,000.
B)Assets increase $20,000; liabilities increase $20,000.
C)Assets increase $20,000; owner's equity increases $20,000.
D)Assets increase $20,000; assets decrease $20,000.
Answer: D
Q3) The balance sheet shows whether or not a business is earning a profit.
A)True
B)False
Answer: False
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3
Chapter 2: Recording Business Transactions
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Sample Questions
Q1) When is a trial balance usually prepared?
A)After each entry is journalized
B)Before financial statements are prepared
C)After financial statements are published
D)At the beginning of an accounting period
Answer: B
Q2) A business makes a cash payment for advertising expense. Which account is debited?
A)Cash
B)Service revenue
C)Accounts receivable
D)Advertising expense
Answer: D
Q3) The owner's capital account is increased by a debit.
A)True
B)False
Answer: False
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Page 4
Chapter 3: The Adjusting Process
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Sample Questions
Q1) What type of account is Unearned revenue and what is its normal balance?
A)Liability and credit
B)Asset and credit
C)Revenue and debit
D)Asset and debit
Answer: A
Q2) Unearned revenue would be classified as a(n)________ account.
A)liability
B)asset
C)revenue
D)equity
Answer: A
Q3) Smith signed a contract with a service provider for security services at a rate of $250 per month for the period of January through June. He will pay the service provider the entire amount at the end of June. Smith makes adjusting entries each month. During the month of February, Smith will record total security expense of $500.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Which of the following adjusted balances would appear in the balance sheet credit column of a worksheet?
A)Rent revenue
B)Insurance expense
C)Salary payable
D)Equipment
Q2) Beginning balance in Capital is $80,000. Revenues are $60,000. Expenses are $75,000. No withdrawals were taken. The ending balance in Capital is $95,000.
A)True
B)False
Q3) Which of the following statements is an accurate interpretation of a debt ratio of .60?
A)The company has $.60 of current liabilities for every $1.00 of current assets.
B)The company has $.60 of assets for every $1.00 of liabilities.
C)The company has $.60 of current assets for every $1.00 of current liabilities.
D)The company has $.60 of liabilities for every $1.00 of assets.
Q4) Permanent accounts are NOT closed at the end of the period.
A)True
B)False
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Chapter 5: Merchandising Operations
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Sample Questions
Q1) A company's net sales revenue is $540,000. Its cost of goods sold is $360,000. Its gross profit percentage is:
A)33.33%.
B)66.67%.
C)100%.
D)300%.
Q2) A company uses the periodic inventory method. Which of the following entries would be made to record a purchase of inventory on account?
A)The accounting entry would be a debit to Purchases and a credit to Accounts payable.
B)The accounting entry would be a debit to Accounts payable and a credit to Purchases.
C)The accounting entry would be a debit to Inventory and a credit to Accounts payable.
D)The accounting entry would be a debit to Accounts payable and a credit to Inventory.
Q3) Operating income is Gross profit minus Operating expenses.
A)True
B)False
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Chapter 6: Merchandising Inventory
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Sample Questions
Q1) Given the same purchase and sales data, the three major costing methods will result in three different amounts for Cost of goods sold.
A)True
B)False
Q2) A company discovers that its Cost of goods sold is understated by an insignificant amount. They do NOT need to correct the error because of the conservatism principle.
A)True
B)False
Q3) Which of the following principles are reflected in the lower-of-cost-or-market rule?
A)Accounting conservatism
B)Materiality concept
C)Disclosure principle
D)Consistency principle
Q4) Gross profit is Sales revenue divided by Cost of goods sold.
A)True
B)False
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Chapter 7: Internal Control and Cash
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Sample Questions
Q1) In a bank reconciliation, an NSF check will be shown on the bank side of the reconciliation.
A)True
B)False
Q2) The following information is needed to reconcile the cash balance for Woods Paper Products. A deposit of $5,794.62 is in transit.
Outstanding checks total $1,533.25.
The book balance is $5,695.62.
The bookkeeper recorded a $1,524.00 check as $15,240 in payment of the current month's rent.
The bank balance at February 28, 2008 was $16,500.25.
A deposit of $300 was credited by the bank for $3,000.
A customer's check for $1,280 was returned for nonsufficient funds.
The bank service charge is $70.
What was the adjusted book balance?
A)$6,670.38
B)$18,061.62
C)$20,761.62
D)$10,140.24
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Page 9
Chapter 8: Receivables
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Sample Questions
Q1) When a business discounts a note receivable to a bank or financial broker, the business will generally receive either more or less than the maturity value of the note.
A)True
B)False
Q2) On December 1, 2014, Parsons Sales sold machinery to a customer for $2,000. The customer could not pay at the time of sale, but agreed to pay 9 months later, and signed a 9-month note at 12% interest. How much interest revenue was earned for the entire term of the note?
A)$180
B)$75
C)$160
D)$90
Q3) The ratio that indicates how many days, on average, it takes to collect the receivables is known as the days' sales in receivables.
A)True
B)False
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Chapter 9: Plant Assets and Intangibles
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Sample Questions
Q1) Albatross Services scrapped a van. The van originally cost $40,000 and had accumulated depreciation of $38,000. What was the effect of scrapping the van?
A)Gain of $2,000
B)No gain or loss
C)Loss of $1,600
D)Loss of $2,000
Q2) When a plant asset is sold, if the book value is higher than the sales price, there will be a loss on sale.
A)True
B)False
Q3) Which of the following assets is NOT an intangible asset?
A)Patent
B)Goodwill
C)Building
D)Trademark
Q4) If a company incurs an expense, but treats it as an asset, net income would be understated.
A)True
B)False
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Chapter 10: Current Liabilities and Payroll
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Sample Questions
Q1) Which of the following is pay stated as a percentage of a sale amount?
A)Bonuses
B)Benefits
C)Wages
D)Commissions
Q2) FICA tax is a tax which is paid by the employer only and is not deducted from the employee's pay.
A)True
B)False
Q3) A contingent liability that has a remote possibility of becoming an actual loss is included in a note to the financial statements.
A)True
B)False
Q4) Art Parrish, the sole employee of Parrish Sales, has gross salary for March of $4,000. The entire amount is under the OASDI limit of $106,800, and thus subject to FICA. The total amount of FICA that will be recorded as company expense totals $612.
A)True
B)False
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Page 12
Chapter 11: Long-Term Liabilities, Bonds Payable, and
Classification of Liabilities on the Balance Sheet
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Q1) On November 1, 2015, Archangel Services issued $200,000 of 10-year bonds with a stated rate of 3%. The bonds were sold at par, and make semiannual payments on April 30 and October 31. At December 31, 2015, Archangel made an adjusting entry to accrue interest at year-end. No further entries were made until April 30, 2016, when the first payment was sent out. At that time, how much interest expense was recorded for the period of January through April, 2016?
A)$2,000
B)$1,000
C)$6,000
D)$3,000
Q2) If a bond is issued at a premium, it will sell for more than face value.
A)True
B)False
Q3) Premium on bonds payable is considered to be additional interest expense of the company that issues the bond.
A)True
B)False
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Page 13
Chapter 12: Corporations: Paid-In Capital and the Balance Sheet
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Sample Questions
Q1) Which of the following would be included in the entry to record the payment of a previously declared dividend of $.25 per share on 12,500 shares of common stock?
A)Retained earnings would be debited for $3,125.
B)Cash would be debited for $3,125.
C)Dividends payable would be credited for $3,125.
D)Dividends payable would be debited for $3,125.
Q2) Different classes and types of stock carry different degrees of risk for the shareholder.
A)True
B)False
Q3) Dallkin Corporation issued 5,000 shares of common stock on January 1, 2013. The stock has no par value and was sold at $18 per share. The journal entry for this transaction would:
A)debit Cash $90,000 and credit Common stock $90,000.
B)debit Cash $90,000 and credit Paid-in capital $600,000.
C)credit Cash $90,000 and debit Common stock $90,000.
D)credit Cash $90,000, debit Paid-in capital $5,000, and debit Common stock $85,000.
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Page 14
Chapter 13: Corporations: Effects on Retained Earnings and the
Income Statement
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Sample Questions
Q1) What are the conditions that must be TRUE for an event to be considered extraordinary?
A)The event must be infrequent, but not unusual, to be considered extraordinary.
B)The event must be both infrequent and unusual to be considered extraordinary.
C)The event must be unusual, but not infrequent, to be considered extraordinary.
D)Infrequent and unusual are not requirements for an event to be considered extraordinary.
Q2) Which of the following statements is TRUE?
A)Restrictions on retained earnings require adjusting journal entries.
B)Restrictions on retained earnings are usually reported in the notes to the financial statements.
C)Restrictions on retained earnings are disclosed on the income statement.
D)Restrictions on retained earnings are designed to maximize dividends paid to shareholders.
Q3) Certain types of transactions, other than dividend payments, that are NOT included in the income statement, but have an effect on retained earnings would be treated as part of comprehensive income.
A)True
B)False
Page 15
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Chapter 14: The Statement of Cash Flows
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Sample Questions
Q1) Buying property, plant and equipment would be considered a cash outflow from financing.
A)True
B)False
Q2) Of the following, which is NOT a cash outflow from an investing activity?
A)Purchase of long-term investments, such as the stock of another company
B)Loans made to another party
C)Purchase of treasury stock
D)Purchase of land
Q3) Arturo Sales purchased some equipment for $12,000 by issuing a 6-month note payable. Because this was a noncash transaction, it would not be shown in the main body of the statement of cash flows, but in a separate section for noncash investing and financing activities.
A)True
B)False
Q4) Interest expense incurred on a note payable would be included in the financing section of the statement of cash flows.
A)True
B)False
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Chapter 15: Financial Statement Analysis
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Sample Questions
Q1) The gross profit percentage is an indicator of how well a company is positioned to pay off its short-term liabilities.
A)True
B)False
Q2) The accounts receivable turnover is an indicator of the ability of a company to collect cash from its credit customers.
A)True B)False
Q3) A company has $510,000 in Average common stockholders' equity, Net income of $312,000, and Preferred dividends paid of $15,000. What is the rate of return on common stockholders' equity?
A)58.2%
B)61.2%
C)59.3%
D)62.0%
Q4) Vertical analysis is used with the income statement, but not with the balance sheet. A)True B)False
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Chapter 16: Introduction to Management Accounting
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Sample Questions
Q1) Which of the following properly describes the accounting for advertising costs?
A)Advertising costs are product costs and are expensed as incurred.
B)Advertising costs are period costs and are expensed as incurred.
C)Advertising costs are product costs and are expensed when the manufactured product is sold.
D)Advertising costs are period costs and are expensed when the manufactured product is sold.
Q2) Management accounting often requires forward-looking data because of the futuristic nature of many business decisions.
A)True
B)False
Q3) Financial reporting is typically much more detailed than managerial accounting.
A)True
B)False
Q4) During the past century, many developed economies have shifted their focus from a service economy to a manufacturing economy.
A)True
B)False
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Page 18
Chapter 17: Job Order and Process Costing
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Q1) Fogelin Promotional Services uses a job order system for costing and billing promotional services for dance and ballet performances. Fogelin has 4 public relations specialists, plus an office staff. At the beginning of 2012, Fogelin estimated the total cost of salaries and benefits for the public relations specialists at $403,200, and a total of 7,200 billable hours for the year. All remaining office and administrative costs were estimated at $676,800. What rate would Fogelin use for the cost of its office and administrative staff?
A)$94 per hour
B)$150 per hour
C)$68 per hour
D)$56 per hour
Q2) Work in process inventory is debited for the incurrence of both direct and indirect labor in a job costing system.
A)True
B)False
Q3) In a process costing system, conversion costs are normally assumed to be incurred evenly throughout the production process.
A)True
B)False
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Page 19
Chapter 18: Activity-Based Costing and Other Cost Management Tools
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Q1) Costs incurred when the company corrects for poor-quality goods before they are delivered to the customer are considered internal failure costs.
A)True
B)False
Q2) With increased competition, managers need more accurate estimates of product costs to set prices and to identify the most profitable products.
A)True
B)False
Q3) Morley Manufacturing is considering the manufacture of a new product. Morley was hoping to sell the product for $168 per unit and estimated the total cost per unit to be $120. Morley conducted market research and found out that the market is only willing to pay $154 for the new product. Using the target costing approach, what does the total per unit cost of the new product have to be if Morley wants to achieve the same amount of profit as originally planned?
A)$110
B)$106
C)$109
D)$100
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Chapter 19: Cost-Volume-Profit Analysis
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Q1) If variable costs go down, and all other factors remain the same, the company will have to sell more units to break even.
A)True
B)False
Q2) Variable costs change in direct proportion to a change in volume.
A)True
B)False
Q3) Total variable costs change in response to changes in the volume of production.
A)True
B)False
Q4) Jarvis Foods produces a gourmet condiment which sells for $10.00 per unit. Variable costs are $7.50 per unit, and fixed costs are $18,000 per month. Jarvis is currently selling 8,000 units per month. If Jarvis is forced to reduce the selling price down to $9.00 per unit, and volume remains constant, how will that affect its breakeven point in dollars?
A)Breakeven will go down by $36,000 of sales revenues.
B)Breakeven will go down by $4,800 of sales revenues.
C)Breakeven will go up by $36.000 of sales revenues.
D)Breakeven will go up by $8,000 of sales revenues.
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Page 21
Chapter 20: Short-Term Business Decisions
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Q1) Seven Seas Company manufactures 100 luxury yachts per month. Included in each yacht is a compact media center. Seven Seas manufactures the media center in-house, but is considering the possibility of outsourcing that function, in order to close down some of their facilities and reduce the administrative costs. At present, the variable cost per unit is $275 and the fixed costs are $39,000 per month. Assuming that if they outsource, and the fixed costs could be eliminated entirely, at what contract rate would outsourcing pay off for Seven Seas? (Please round to nearest whole dollar.)
A)At any rate lower than $844 per unit
B)At any rate lower than $796 per unit
C)At any rate lower than $775 per unit
D)At any rate lower than $665 per unit
Q2) The benefit foregone by NOT choosing an alternative course of action is referred to as a(n):
A)opportunity cost.
B)sunk cost.
C)variable cost.
D)incremental cost.
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Page 22
Chapter 21: Capital Investment Decisions and the Time Value of Money
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Q1) Wasson Corporation is considering an investment project costing $520,000. The project is estimated to have an eight-year life, generate annual cash flows of $120,000, and have a salvage value of $40,000 after eight years. What is the project's payback period?
A)2.8 years
B)4.3 years
C)4 years
D)6.5 years
Q2) Pearl Manufacturing is considering an investment in equipment costing $660,000. The equipment will be depreciated on the straight-line basis over an eight-year period with an estimated residual value of $120,000. The investment is expected to generate annual net cash inflows of $135,000 for 8 years. Using the rate of return model, what is the minimum average annual operating income that must be generated from this investment in order to achieve a 14% rate of return?
A)$18,900
B)$37,800
C)$54,600
D)$92,400
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Chapter 22: The Master Budget and Responsibility Accounting
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Sample Questions
Q1) Which of the following BEST describes a business unit where the manager is primarily responsible for cost control?
A)Profit center
B)Investment center
C)Revenue center
D)Cost center
Q2) One of the key functions of responsibility accounting is to evaluate the performance of company managers and the units they manage.
A)True
B)False
Q3) Budgets provide benchmarks that help managers evaluate performance.
A)True
B)False
Q4) Which of the following describes the operating expenses budget?
A)It aids in planning to ensure the company has adequate inventory on hand.
B)It captures the variable and fixed expenses of the business.
C)It depicts the breakdown of sales based on terms of collection.
D)It helps in planning to ensure the business has adequate cash.
Page 24
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Chapter 23: Flexible Budgets and Standard Costs
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Q1) When analyzing overhead costs, which of the following is a key point to investigate?
A)Whether workers can produce goods more quickly and efficiently
B)Whether direct materials prices are higher than standards
C)Whether certain overhead costs are controllable or not
D)Whether labor costs can be reduced
Q2) In a standard costing system, each item has a price standard and a quantity standard.
A)True
B)False
Q3) Discount Brand Products uses standard costing to manage their direct costs and their overhead costs. Overhead costs are allocated based on direct labor hours. In the first quarter, Discount Brand had a favorable efficiency variance for their variable overhead costs. Which of the following scenarios would be a reasonable explanation for that variance?
A)The actual number of direct labor hours was lower than budgeted.
B)The actual costs were higher than budgeted.
C)The actual costs were lower than budgeted.
D)The actual number of direct labor hours was higher than budgeted.
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Chapter 24: Performance Evaluation and the Balanced Scorecard
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Q1) Companies benchmark their performance against the performance of their competitors and also against their own past performance.
A)True
B)False
Q2) One part of the balanced scorecard helps management answer the question: "What business processes must we excel at in order to reach our objectives?" Which of the four perspectives is being described here?
A)Financial perspective
B)Customer perspective
C)Internal business perspective
D)Learning and growth perspective
Q3) Which of the following KPIs are used to evaluate how efficiently a business unit uses assets?
A)Return on investment
B)Defect rate
C)Employee satisfaction
D)Production efficiency
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Page 26