Business Accounting
Final Exam
Course Introduction
Business Accounting provides students with a foundational understanding of accounting principles, practices, and procedures essential for effective business management. The course covers key topics such as the accounting cycle, financial statement preparation and analysis, recording financial transactions, and understanding the role of accounting in decision-making. Emphasis is placed on the interpretation of balance sheets, income statements, and cash flow statements, enabling students to assess an organizations financial health. Through practical exercises and real-world examples, students gain the analytical skills needed to apply accounting knowledge in diverse business environments and support strategic planning and control.
Recommended Textbook
Accounting 9th Global Edition by Charles T. Horngren
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Page 2
Chapter 1: Accounting and the Business Environment
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Sample Questions
Q1) Hamilton Lawn Service incurred $500 labor expense and promised to pay the labor agency within 30 days. Which account increased?
A)Accounts receivable
B)Cash
C)Accounts payable
D)Owner's capital
Answer: C
Q2) Bill purchased office supplies for $500 cash. What is the effect on accounts?
A)Cash account increases; Accounts payable increases.
B)Cash account increases; Supplies account increases.
C)Supplies account increases; Cash account decreases.
D)Supplies account increases; Owner's capital account increases.
Answer: C
Q3) A relatively low amount of government regulation is a key advantage of a:
A)partnership.
B)not-for-profit.
C)corporation.
D)proprietorship.
Answer: D
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Page 3
Chapter 2: Recording Business Transactions
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Sample Questions
Q1) A business pays cash back to the owner. Which account is debited?
A)Cash
B)Drawing
C)Accounts payable
D)Service revenue
Answer: B
Q2) After initially recording a transaction, the data is then copied, or posted, to the:
A)chart of accounts.
B)ledger.
C)trial balance.
D)journal.
Answer: B
Q3) Equipment is purchased for cash. Which of the following would be TRUE?
A)There is an increase in total assets.
B)There is a decrease in both total assets and total liabilities.
C)There is an increase in total assets and a decrease in total liabilities.
D)There is no effect on total assets.
Answer: D
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4
Chapter 3: The Adjusting Process
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Sample Questions
Q1) The accountant for Barnes Architectural Services failed to make an adjusting entry to record $7,000 of depreciation expense. Which of the following is TRUE?
A)Total revenue is overstated.
B)Total revenue is understated.
C)Total expenses are overstated.
D)Total expenses are understated.
Answer: D
Q2) Robert Rogers, CPA performed accounting services for a client in December. A bill was mailed to the client on December 30. Roberts received a check in the mail on January 5. The revenue principle would require that which of the following accounts appear on the income statement for the year ended December 31?
A)Service revenue
B)Unearned revenue
C)Accounts payable
D)Prepaid expense
Answer: A
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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) Which is NOT an example of a temporary account?
A)Wages expense
B)Accumulated depreciation
C)Service revenue
D)Utilities expense
Q3) As part of the closing process, revenues and expenses are closed to a temporary account called Net income (loss).
A)True
B)False
Q4) Which of the following does NOT appear on the worksheet?
A)Closing entries
B)Adjusted balances
C)Net income
D)Adjusting entries
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Chapter 5: Merchandising Operations
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Sample Questions
Q1) A company that uses the perpetual inventory method purchases inventory of $1,000 on account with terms of 2/10, n/30. Which of the following entries would be made to record the payment if it is made within 10 days?
A)$1,000 debit to Accounts payable and a $1,000 credit to Cash
B)$1,000 debit to Accounts payable, a $20 credit to Inventory and a $980 credit to Cash
C)$20 debit to Inventory, a $1,000 debit to Accounts payable and a $1,020 credit to Cash
D)$980 debit to Accounts payable, a $20 debit to Inventory and a $1,000 credit to Cash
Q2) Freight in should be added to the inventory account if the company uses the perpetual inventory method.
A)True
B)False
Q3) Merchandising consists of:
A)manufacturing products.
B)providing a service.
C)buying and selling products.
D)purchasing raw materials.
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Chapter 6: Merchandising Inventory
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Sample
Questions
Q1) Martin Sales had a Beginning inventory balance of $120 made up of 10 units purchased for $12.00 per unit. Early in the month, they purchased 16 units at $10.00 per unit. Later that month, they sold 15 units. Martin uses a perpetual inventory system, and applies the average-costing method. How much is the Ending inventory balance? (When calculating average cost, please round to the nearest cent. When calculating Cost of goods sold and Ending inventory, please round to the nearest whole dollar.)
A)$122
B)$126
C)$118
D)$109
Q2) Under which of the following inventory costing methods is the Cost of goods sold based on the cost of the oldest purchases?
A)Specific-unit-cost
B)Average-cost
C)Last-In, First-Out
D)First-In, First-Out
Q3) Gross profit is Sales revenue divided by Cost of goods sold.
A)True
B)False
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Page 8
Chapter 7: Internal Control and Cash
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Sample Questions
Q1) A pharmaceutical company testing drugs to determine possible side effects is a part of:
A)monitoring controls.
B)information systems.
C)control procedures.
D)risk assessment.
Q2) Which of the following describes 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)Have clearly assigned responsibilities for each position.
Q3) When designing a system of internal control, every procedure should be implemented strictly and properly, regardless of the cost.
A)True
B)False
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Chapter 8: Receivables
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Sample Questions
Q1) On which of the following dates does a three-month note dated November 12 mature?
A)February 10
B)February 12
C)February 13
D)February 11
Q2) A company has Net sales of $850,000, Beginning net receivables of $230,000 and Ending net receivables of $190,000. What is the days' sales in accounts receivable? (Please round to nearest whole day.)
A)82 days
B)99 days
C)93 days
D)90 days
Q3) An acid-test ratio of at least 1.0 is considered safe.
A)True
B)False
Q4) Companies that use GAAP accounting will prefer the use of the direct write-off method.
A)True B)False
Page 10
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Chapter 9: Plant Assets and Intangibles
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Sample Questions
Q1) Avery Sales purchased telecom equipment for $5,000 on July 1, 2013. It has estimated residual value of $200, and an estimated life of 8 years. If Avery uses straight-line depreciation, how much expense will be recorded in 2013?
A)$312
B)$300
C)$600
D)$625
Q2) Avery Sales purchased telecom equipment for $5,000 on November 1, 2013. It has estimated residual value of $200, and an estimated life of 8 years. If Avery uses straight-line depreciation, how much expense will be recorded in 2013?
A)$312
B)$120
C)$100
D)$225
Q3) Which of the following items should be depreciated?
A)Tangible property, plant, and equipment, other than land
B)Intangible property
C)Land
D)Natural resources
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Chapter 10: Current Liabilities and Payroll
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Sample Questions
Q1) A certain contingent liability was evaluated at year-end, and considered to have a remote possibility of becoming an actual liability. If the accountant decided NOT to report it on the balance sheet or in the notes to the financial statement, what effect would this have on the financial reporting of the company?
A)There would be no effect.
B)The liabilities on the balance sheet would be understated.
C)The information about the transaction would be inadequately disclosed in the notes.
D)The net income of the company would be understated.
Q2) Estimated warranty payable would be included in the liability section of the balance sheet.
A)True
B)False
Q3) Ensuring efficiency of the payroll process is one of the two key controls for payroll. A)True
B)False
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Chapter 11: Long-Term Liabilities, Bonds Payable, and
Classification of Liabilities on the Balance Sheet
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Q1) Which of the following is TRUE of a premium on bonds payable?
A)A premium on bonds payable is added to the bonds payable balance and shown with long-term liabilities on the balance sheet.
B)A premium on bonds payable is added to the bonds payable balance and shown with owner's equity on the balance sheet.
C)A premium on bonds payable is subtracted from the bonds payable balance and shown with long-term liabilities on the balance sheet.
D)A premium on bonds payable is subtracted from the bonds payable balance and shown with the current liabilities on the balance sheet.
Q2) The balance in the Bonds payable is a credit of $50,000. The balance in the Premium on bonds payable is a credit of $900. The balance sheet will report the bond balance as $49,100.
A)True
B)False
Q3) The market rate is the rate used to calculate the actual cash payments made to bondholders.
A)True B)False
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Chapter 12: Corporations: Paid-In Capital and the Balance Sheet
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Sample Questions
Q1) 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.
Q2) Stockholders of a corporation have unlimited liability for the corporation's debt.
A)True
B)False
Q3) Which of the following describes a retained earnings deficit?
A)When the company records a net loss for the year
B)When the retained earnings is less than the total paid-in capital
C)When the retained earnings is a negative amount
D)When the company does not pay out any dividends
Q4) Normally, a company's book income and tax income should be the same.
A)True
B)False
Page 14
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Chapter 13: Corporations: Effects on Retained Earnings and the Income Statement
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Q1) Qdot International originally issued common stock at a price of $20 per share. A year later, they distributed a 10% stock dividend to shareholders. At the time of the stock dividend, the share price had gone up to $24 per share. Under the rules of GAAP for stock dividends, Qdot will record neither a gain nor a loss on the stock dividend, despite the fact that the share price went up.
A)True
B)False
Q2) Rakish Co. purchases 3,500 shares of its own $1 par value common stock for $80 per share. Which of the following is the correct journal entry to record this transaction?
A)Debit Common stock $3,500, debit Paid-in capital $276,500 and credit Cash $280,000.
B)Debit Cash $280,000, credit Common stock $3,500 and credit Paid-in capital $276,500.
C)Debit Cash $280,000 and credit Treasury stock $280,000.
D)Debit Treasury stock $280,000 and credit Cash $280,000.
Q3) Stock dividends have no effect on assets or liabilities.
A)True
B)False
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Page 15
Chapter 14: The Statement of Cash Flows
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Q1) The total net amount of cash flow from operating activities will be the same, whether you use the direct or the indirect method of preparing the statement of cash flow.
A)True
B)False
Q2) In creating a statement of cash flows using the indirect method, depreciation expense is added back as an adjustment to net income under operating activities.
A)True
B)False
Q3) Companies sometimes make investments that do NOT require cash. Such transactions are called noncash investing activities and appear in a separate section of the cash flow statement.
A)True
B)False
Q4) The first section presented on the statement of cash flows is the operating activities section.
A)True
B)False
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Chapter 15: Financial Statement Analysis
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Sample Questions
Q1) The price/earnings ratio indicates the:
A)dividend yield of the company.
B)market price of $1 of earnings.
C)percentage of common stock financed by debt.
D)ease of selling inventory.
Q2) What kind of information does a company's debt ratio provide?
A)What proportion of the company's debts are long-term liabilities
B)What proportion of the company's assets are financed by debt, as opposed to equity
C)How well a company is positioned to pay off all of its long-term debt
D)How much profit is generated by each share of stock
Q3) In a vertical analysis of the income statement, each line item is shown as a percentage of gross profit.
A)True
B)False
Q4) The rate of return on net sales is used for which kind of evaluation?
A)The ability of a company to pay its current liabilities
B)The ability of a company to pay its long-term liabilities
C)The overall profitability of a company
D)Evaluating stock in a company from an investor's perspective
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Chapter 16: Introduction to Management Accounting
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Sample Questions
Q1) Budget preparation is a part of the planning process.
A)True
B)False
Q2) For a manufacturing business, which of the following would be considered an inventoriable product cost?
A)Depreciation of delivery vehicles
B)Depreciation of administrative building furniture and fixtures
C)Depreciation of manufacturing equipment
D)Depreciation of the accounting department computer equipment
Q3) Which of the following applies to goods that are purchased from a producer and sold by a merchandising company?
A)Materials inventory
B)Work in process inventory
C)Merchandise inventory
D)Finished goods inventory
Q4) Which of the following applies to goods that are partially completed?
A)Materials inventory
B)Work in process inventory
C)Merchandise inventory
D)Finished goods inventory
Page 18
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Chapter 17: Job Order and Process Costing
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Q1) Gardner Machine Shop uses a predetermined manufacturing overhead rate of $63.20 per direct labor hour. In January, Gardener completed job number A33, which included 15 direct labor hours. Which of the following correctly describes the journal entry needed to allocate overhead to the job?
A)Debit Finished goods for $948, credit Manufacturing overhead for $948
B)Debit Manufacturing overhead for $948, credit Work in process for $948
C)Debit Work in process for $948, credit Manufacturing overhead for $948
D)Debit Cost of goods sold for $948, credit Finished goods for $948
Q2) During 2012, a company incurs $500,000 of manufacturing overhead costs and allocates out $506,000 of manufacturing overhead costs. Overhead costs have been underallocated.
A)True
B)False
Q3) Job order costing is used primarily in the manufacturing and industrial sectors, but is not well suited for the service industry.
A)True
B)False
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Chapter 18: Activity-Based Costing and Other Cost Management Tools
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Sample Questions
Q1) The cost of training personnel is an example of an:
A)appraisal cost.
B)prevention cost.
C)internal failure cost.
D)external failure cost.
Q2) Which of the following is NOT an internal failure cost?
A)Production losses caused by downtime
B)Warranty costs
C)Rework costs
D)Rejected product units
Q3) In a just-in-time costing system, the entry to record direct material purchases on account would include which of the following?
A)Debit to raw and in process inventory
B)Credit to cash
C)Debit to materials inventory
D)Credit to raw and in process inventory
Q4) Activity-based management can be used to make business decisions about cost cutting.
A)True
B)False
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Chapter 19: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Chambers Company sells glass vases at a wholesale price of $2.50 per unit. Variable cost is $1.75 per unit. Chambers' fixed costs are $6,500 per month. If Chambers wishes to make operating income of $2,500, how many units must be sold?
A)11,500
B)11,750
C)12,000
D)12,500
Q2) JB Company has fixed costs of $300,000. Total costs, both fixed and variable, are $378,000 when 40,000 units are produced. How much is the variable cost per unit? (Please round to the nearest cent.)
A)$9.45
B)$2.78
C)$7.50
D)$1.95
Q3) Breakeven is the point where the sales revenues are exactly equal to the total variable costs plus the total fixed costs.
A)True
B)False
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Chapter 20: Short-Term Business Decisions
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Q1) A sunk cost is a cost that was previously incurred and is irrelevant to the decision making process.
A)True
B)False
Q2) Victory Company makes a special kind of racing tire. Variable costs are $220, and fixed costs are $30,000 per month. Victor sells 500 units per month at a price of $300. If Victory upgrades the quality of the tire, they believe they can boost the price up to $340. If so, the variable cost will go up to $230 and the fixed costs will rise by 50%. If Victory decides to upgrade, how will it affect operational income?
A)Go down $1,250
B)Go down $4,500
C)Go up $12,500
D)Remain the same
Q3) If a company is a price-taker, which of the following is probably TRUE?
A)The company is in a highly competitive market.
B)The company's product is unique.
C)The company has considerable flexibility in setting prices of its products.
D)The company clearly differentiates its product from the competitors.
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Page 22
Chapter 21: Capital Investment Decisions and the Time Value of Money
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Q1) Using the NPV method of evaluating investments, a company should consider a project a good investment opportunity as long as the NPV of the total cash flows is positive.
A)True
B)False
Q2) Which of the following most accurately describes the discount rate used in NPV and IRR analyses?
A)The rate of inflation
B)The rate of interest earned on a savings account
C)The required rate of return, also known as the "hurdle rate"
D)The rate of interest charged for debt financing of an investment
Q3) All else being equal, investments with longer payback periods are more desirable.
A)True
B)False
Q4) A criticism of the rate of return method is that it ignores the time value of money.
A)True
B)False
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Chapter 22: The Master Budget and Responsibility Accounting
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Q1) Which of the following is NOT a characteristic of the budgeting process?
A)The budget process aids in performance evaluation.
B)The budget process helps coordinate the activities of the organization.
C)The budget process forces management to plan ahead.
D)The budget process ensures that the business will make a profit.
Q2) The budgeted "Cash payments for purchases" must be completed before the "Inventory, Purchases and Cost of goods sold budget" can be prepared.
A)True
B)False
Q3) The capital expenditure budget stands alone and is not part of either the operating budget or the financial budget.
A)True
B)False
Q4) Which of the following is an example of the planning function of a budget?
A)A budget demands integrated input from different business units and functions.
B)Employees are motivated to achieve the goals set by the budget.
C)Budget figures are used to evaluate the performance of managers.
D)The budget outlines a specific course of action for the coming period.
Page 24
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Chapter 23: Flexible Budgets and Standard Costs
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Q1) The sales volume variance results from the fact that the actual selling price is different than the budgeted selling price.
A)True
B)False
Q2) Artscapes Company is setting its direct materials and direct labor standards for its leading product. Materials cost from the supplier are $4.50 per square foot, net of purchase discount. Freight-in amounts to $0.10 per square foot. Basic wages of the assembly line personnel are $12.00 per hour. Payroll taxes are approximately 20% of wages. Benefits amount to $3.00 per hour. How much is the direct material price standard (per square foot)?
A)$4.60 per square foot
B)$4.00 per square foot
C)$3.90 per square foot
D)$16.50 per square foot
Q3) Companies use techniques like time-and-motion studies, and consult industry "best practices" when developing standards. This is referred to as benchmarking.
A)True
B)False
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Chapter 24: Performance Evaluation and the Balanced Scorecard
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Q1) Which of the following statements MOST accurately describes the profit margin?
A)How efficiently a division uses its average assets to generate sales
B)How much operating income the division earns on every dollar of sales
C)How much return a division generates on average assets
D)How much extra income does a division generate above the minimum acceptable level
Q2) Which of the following statements MOST accurately describes asset turnover?
A)How efficiently a division uses its average assets to generate sales
B)How much operating income the division earns on every dollar of sales
C)How much return a division generates on average assets
D)How much extra income does a division generate above the minimum acceptable level
Q3) KPIs, such as percentage of market share and rate of on-time deliveries, pertain to which of the four perspectives of a balanced scorecard?
A)Financial perspective
B)Customer perspective
C)Internal business perspective
D)Learning and growth perspective
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