Business Accounting
Final Test Solutions
Course Introduction
Business Accounting is a foundational course that introduces students to the principles and practices of financial and managerial accounting within a business context. Students will learn how to prepare, interpret, and analyze financial statements, understand the accounting cycle, and apply accounting concepts to decision-making processes. The course covers key topics such as assets, liabilities, equity, revenue recognition, expense matching, budgeting, internal controls, and ethical considerations in accounting. Emphasis is placed on the role of accounting information in planning, controlling, and evaluating business operations to support effective management and organizational performance.
Recommended Textbook
Financial Accounting 11th Edition by
W. Steve Albrecht
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24 Chapters
2549 Verified Questions
2549 Flashcards
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Page 2
Chapter 1: Accounting Information: Users and Uses
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Sample Questions
Q1) The current standard-setting board for accounting in the private sector is the
A) Financial Accounting Standards Board (FASB)
B) Securities and Exchange Commission (SEC)
C) International Accounting Standards Board (IASB)
D) American Accounting Association (AAA)
Answer: A
Q2) Accountants typically perform what action related to the financial results of business activities?
A) Report the results of business activities
B) Advise on how to structure business activities
C) Both report the results of and advise on how to structure business activities
D) None of these are correct
Answer: C
Q3) The area of accounting that is concerned with providing information for external users is referred to as
A) Financial accounting
B) Governmental accounting
C) Management accounting
D) Not-for-profit accounting
Answer: A
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Chapter 2: Financial Statements: An Overview
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Sample Questions
Q1) Another name for the income statement is
A) Statement of cash flows
B) Statement of financial position
C) Statement of earnings
D) Retained earnings statement
Answer: C
Q2) Which of the following classifications does NOT appear on the Statement of Cash Flows?
A) Investing
B) Operating
C) Borrowing
D) Financing
Answer: C
Q3) Expense and revenue accounts appear on the A) Balance sheet
B) Income statement
C) Retained earnings statement
D) Funds statement
Answer: B
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Page 4
Chapter 3: The Accounting Cycle: The Mechanics of Accounting
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Sample Questions
Q1) A credit sale of merchandise for a price that exceeds the cost of the merchandise
A) Increases net assets and increases liabilities
B) Decreases net assets and increases revenues
C) Increases liabilities and increases revenues
D) Increases net assets and increases revenues
Answer: D
Q2) Which of the following is NOT an advantage of using computers?
A) Increased accuracy in the posting process
B) Data is accepted without question
C) Reports can be prepared with increased efficiency
D) Elimination of the need to specify the terms debit and credit
Answer: B
Q3) Each account is assigned a number. This systematic listing of all accounts is called a
A) Trial Balance
B) General Journal
C) General Ledger
D) Chart of Accounts
Answer: D
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Which of the following will occur if an adjusting entry to record an accrued but unrecorded liability is NOT made?
A) Both expenses and liabilities will be understated.
B) Both expenses and liabilities will be overstated.
C) Expenses will be understated, but liabilities will be overstated.
D) Liabilities will be understated, but expenses will be overstated.
Q2) Refer to Exhibit 4-2. Given the information above, the entry to close expenses would include a
A) Debit to Utilities expense of $42,000
B) Credit to Utilities expense of $42,000
C) Credit to Sales revenue of $630,000
D) Debit to Salaries expense of $483,000
Q3) Adjusting entries are
A) Recorded on a daily basis as transactions occur
B) Not posted to the general ledger
C) Made at the end of an accounting period
D) Not required under accrual-basis accounting
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Chapter 5: Internal Controls: Ensuring the Integrity of Financial Information
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107 Flashcards
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Sample Questions
Q1) Estimates are used in many instances when recording a company's results of operations. Which of the following would NOT require an estimate to be made?
A) Uncollectible accounts
B) Contract percentage of completion
C) Wages earned
D) Expected life of machinery
Q2) All of the following are likely to be methods that could be used to conduct fraud
EXCEPT
A) Overstating liabilities
B) Not recording various expenses
C) Creating fictitious invoices
D) Overstating receivables
Q3) Which of the following is a poor internal accounting control feature?
A) Division of work
B) Combining accountability with custodianship
C) Rotation of personnel
D) Internal auditing
Q4) List and describe the four major reasons for managing reported earnings.
Q5) Discuss the three types of problems that can occur in financial statements.
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Chapter 6: Receivables: Selling a Product or a Service
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Sample Questions
Q1) Amy Company sold $8,000 of merchandise to Tory Turnbull with terms 2/10, n/30. If Tory paid for three-fourths of the merchandise within the discount period and one-fourth after the discount period, he paid a total of
A) $7,840
B) $7,880
C) $7,920
D) $7,960
Q2) Selling products or services is a(n)
A) Operating activity
B) Investing activity
C) Financing activity
D) Revenue activity
Q3) When reconciling a bank statement, direct deposits are
A) Added to the balance per the books
B) Added to the balance per the bank
C) Subtracted from the balance per the books
D) Subtracted from the balance per the bank
Q4) List and describe the three most common cash controls that companies use to safeguard cash.
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Chapter 7: Inventory and the Cost of Sales
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148 Flashcards
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Sample Questions
Q1) If ending inventory on December 31, 2011, is overstated by $60,000, what is the effect on net income for 2012?
A) Net income is overstated by $60,000
B) Net income is understated by $60,000
C) Net income is overstated by $120,000
D) The answer cannot be determined from the information given
Q2) A firm had a beginning inventory balance of $1,000, net purchases of $35,000, and sales of $40,000. Its gross margin percentage was 25 percent. Using the gross margin method, the ending inventory balance is
A) $1,000
B) $7,000
C) $6,000
D) $10,000
Q3) Which of the following accounts would be debited when making closing entries?
A) Cost of Goods Sold
B) Purchases
C) Sales Discounts
D) Purchase Returns
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9
Chapter 8: Completing the Operating Cycle
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Sample Questions
Q1) The yearly increase in the pension obligation associated with work done during the year is the
A) Pension-related interest cost
B) Pension payment
C) Service cost
D) Return on pension fund assets
Q2) Which of the following is the appropriate disclosure in the financial statements for a contingent gain?
A) Estimate the amount of the gain and make the appropriate journal entry
B) Provide detailed disclosure of the gain in the notes
C) No disclosure until the future event resolves itself
D) None of these are correct
Q3) To properly recognize the expense associated with compensated absences, a company should
A) Expense these obligations in the period the employee is absent
B) Estimate and expense these obligations when a new employee is hired
C) Estimate and expense these obligations in the period that the employee earns those days
D) Not recognize any expense for compensated absences
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Page 10
Chapter 9: Investments: Property, Plant, and Equipment and Intangible Assets
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Sample Questions
Q1) Which of the following is considered to be an intangible asset?
A) A gold mine
B) A copyright
C) Land improvement
D) Building
Q2) Coppola Company purchased a machine on January 1, 2011, for $20,000 cash. In addition, Coppola paid $4,000 to have the machine delivered and installed. The estimated useful life of the machine is 4 years, after which time it is expected to have a salvage value of $8,000. It is also estimated that the machine will produce 200,000 units of product during its useful life. Assuming that the straight-line depreciation method is used, what will be the machine's book value on December 31, 2013?
A) $8,000
B) $12,000
C) $16,000
D) $14,000
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Chapter 10: Financing: Long-Term Liabilities
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Sample Questions
Q1) If the market rate of interest is 12 percent and a company is issuing long-term bonds paying 10 percent, at what percent would those liabilities have to be discounted, assuming semiannual compounding?
A) 5 percent
B) 6 percent
C) 10 percent
D) 12 percent
Q2) A long-term, noncancelable lease for a period that is equal to the life of the leased asset is accounted for as a(n)
A) Operating lease
B) Rental agreement
C) Capital lease
D) None of these are correct
Q3) Bonds that have a pledge of company assets are called
A) Secured bonds
B) Debenture bonds
C) Registered bonds
D) Convertible bonds
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12
Chapter 11: Financing: Equity
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Sample Questions
Q1) A corporation's contributed capital is
A) The total par value of the common and preferred stock, along with the associated amounts of paid-in capital in excess of par
B) The total par value of the common and preferred stock
C) The total par value of the common stock and the associated amounts of paid-in capital in excess of par
D) The total par value of the preferred stock and the associated amounts of paid-in capital in excess of par
Q2) Which of the following is NOT true of a corporation?
A) A corporation has easy transferability of ownership.
B) A corporation is taxed separately from its owners.
C) A corporation has the ability to raise large amounts of capital.
D) The owners of a corporation have unlimited liability.
Q3) Which of the following is a basic right of a preferred stockholder?
A) The right to vote for the board of directors
B) The preemptive right
C) The right to receive a dividend
D) The right to excess assets after creditor claims are satisfied
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Chapter 12: Investments: Debt and Equity Securities
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Sample Questions
Q1) On January 1, 2011, Ailey Company purchased a $30,000, 8% bond, at face value. Interest is paid annually each January 1. The entry related to this investment on December 31, 2011, would include a
A) Debit to Interest Receivable for $2,400
B) Credit to Interest Expense for $2,400
C) Debit to Interest Revenue for $2,400
D) Credit to Cash for $2,400
Q2) Which of the following is NOT a typical reason that a company would prefer a debt security over an equity security?
A) Certainty of income
B) Low risk level
C) Certainty of repayment at maturity
D) Voting rights
Q3) Financial statements in which financial data for two or more companies are combined as a single entity are called
A) Conventional statements
B) Consolidated statements
C) Audited statements
D) Constitutional statements
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Page 14
Chapter 13: Statement of Cash Flows
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Sample Questions
Q1) Refer to Exhibit 13-4. Given the information above, cash collected for rent is
A) $16,000
B) $20,000
C) $24,000
D) $24,500
Q2) Ozark Corporation's Retained Earnings balance increased by $100,000 during the year. Ozark also paid $30,000 in cash dividends that had been declared last year and declared dividends of $40,000 for the current year (but has not paid them at year-end).
Ozark's net income for the current year must be
A) $60,000
B) $140,000
C) $130,000
D) $100,000
Q3) A loss from the sale of a building would be reported on an indirect method statement of cash flows as
A) An addition to net income
B) A deduction from net income
C) A cash inflow from financing activities
D) A cash outflow from investing activities
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Page 15
Chapter 14: Analyzing Financial Statements
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91 Flashcards
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Sample Questions
Q1) Which ratio represents how many times a company replenishes its inventory during the year?
A) Average collection period for accounts receivable
B) Accounts receivable turnover
C) Inventory turnover
D) Fixed asset turnover
Q2) Which of the following ratios is calculated using only balance sheet numbers?
A) Price earnings ratio
B) Return on sales
C) Asset turnover
D) Current ratio
Q3) Refer to Exhibit 14-2. If sales revenue for 2012 is $950,000, what is the asset turnover for 2012 (round to two decimal places)?
A) 2.64
B) 1.58
C) 0.96
D) 0.60
Q4) List five efficiency ratios and write out the equation for each one.
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Chapter 15: Management Accounting and Cost Concepts
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102 Flashcards
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Sample Questions
Q1) Which of the following would most likely be a variable cost?
A) Direct materials
B) Direct labor
C) Sales commissions
D) All of these are correct
Q2) In constructing a custom cabinet, an indirect material would be:
A) Wood
B) Screws
C) Brass handles
D) Hinges
Q3) You currently work as a school bus driver. Your salary is $28,000 per year. You are thinking about quitting your job and going back to college. It will take you two years to obtain your college degree. Tuition and other costs of the education will total $24,000. You also intend to keep your car by making the $250 per month payments out of your savings. How much is the opportunity cost of going to college?
A) $28,000
B) $52,000
C) $56,000
D) $62,000
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Page 17
Chapter 16: Cost Flows and Business Organizations
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Sample Questions
Q1) Refer to Exhibit 16-4. How many equivalent units of conversion will be used in calculating product cost per unit?
A) 88,800
B) 87,200
C) 86,000
D) 85,800
Q2) Which of the following typically would NOT have Work in Process inventory:
A) Manufacturing company
B) Merchandising company
C) Service company
D) All of these would have Work in Process inventory
Q3) In a process costing system, to determine the amount of work actually done in a period, you must be sure to include:
A) Beginning work-in-process for the period
B) Ending work-in-process for the period
C) Units started and completed during the period
D) All of these are used to determine work actually done
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Chapter 17: Activity-Based Costing
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Sample Questions
Q1) Refer to Exhibit 17-5. What is Dakota Company's gross margin for Product 2 using activity based costing?
A) $300,000
B) $350,000
C) $480,000
D) $30,000
Q2) Refer to Exhibit 17-2. What is BigView's cost per cost driver for automated processing for next year (rounded)?
A) $9.00 per machine hour
B) $16.80 per machine hour
C) $17.68 per machine hour
D) $33.60 per machine hour
Q3) Refer to Exhibit 17-4. The cost of assembling per tent is:
A) $3.00
B) $15.00
C) $20.00
D) $45.00
Q4) Define activity-based costing and list the five steps in implementing and using an activity-based costing system.
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Chapter 18: Budgeting and Control
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Sample Questions
Q1) Refer to Exhibit 18-4. Given the information above, the cost of goods available for sale for January would be:
A) $54,000
B) $62,000
C) $72,150
D) $78,000
Q2) Cash budgets should EXCLUDE costs incurred for:
A) Materials
B) Equipment
C) Depreciation
D) Both materials and equipment
Q3) Which of the following budget development approaches can be used by management?
A) Top-down approach
B) Bottom-up approach
C) A combination of top-down and bottom-up
D) All of these can be used
Q4) Describe the differences between authoritative budgeting and participative budgeting. Include advantages of each type of budgeting.
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Chapter 19: Controlling Cost and Profit
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Sample Questions
Q1) Refer to Exhibit 19-7. Based on the information above, the variable manufacturing overhead spending variance is:
A) $2,000 favorable
B) $2,000 unfavorable
C) $800 favorable
D) $800 unfavorable
Q2) Refer to Exhibit 19-4. Based on the information above, the sales volume variance is:
A) $750 unfavorable
B) $750 favorable
C) $225 unfavorable
D) $225 favorable
Q3) Of the following, which is probably the greatest benefit of centralization?
A) Employee satisfaction and motivation
B) An improved perspective of lower-level managers on unique divisional problems
C) Managerial flexibility
D) Goal congruence among divisions
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Chapter 20: Inventory Management and Variable and Absorption Costing
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Sample Questions
Q1) Maintaining too little inventory causes all but which of the following problems?
A) The opportunity lost to invest in alternative business investments
B) Increased risk of lost sales
C) Increased ordering costs
D) Increased exposure to nondelivery
Q2) Which of the following is an opportunity cost associated with financial holding costs?
A) Too much inventory
B) Too little inventory
C) Both too much inventory and too little inventory
D) Neither too much inventory nor too little inventory
Q3) The CPA firm of Peck, Williams, and Shafner is conducting an audit of Monolith Enterprises. The audit is estimated to take 4 months to complete and will use $4,000 in supplies, $200,000 in labor, and $320,000 in overhead. Peck's annual rate is 18%. What are the financial holding costs on this project?
A) $0
B) $15,720
C) $31,440
D) $47,160
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Chapter 21: Cost Behavior and Decisions Using C-V-P Analysis
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Sample Questions
Q1) Costs that would NOT be graphed as a straight line are:
A) Variable costs
B) Total costs
C) Fixed costs
D) Stepped costs
Q2) Assume that StoneWorks has total fixed costs of $31,540 for the period. Each unit sells for $20. The variable cost per unit is $12.40. How many units must be sold to break even?
A) 1,577
B) 2,544
C) 4,150
D) 4,200
Q3) The behavior of a cost is usually defined in terms of how that cost varies with respect to:
A) Time
B) Profit
C) Level of activity
D) Sales price
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Page 23
Chapter 22: Relevant Information and Decisions
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Sample Questions
Q1) Assuming a firm has excess capacity, which of the following is NOT a reason that the firm would decide to reduce the normal price of a product or service in order to obtain a special order?
A) The demand for the firm's products has dropped sharply in the last three months
B) The firm is being offered a contract from a foreign distributor based in a country where normal selling prices are lower
C) Market demand is strong and the firm is able to produce more products and still sell them at normal price
D) The firm is able to sell its excess product to be retailed under a generic brand name, the product will sell at lower than normal price
Q2) When using the functional cost approach to set selling prices, the markup must cover:
A) Variable costs plus a reasonable return on investment
B) Fixed costs plus a reasonable return on investment
C) Period costs plus a reasonable return on investment
D) None of these are correct
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Chapter 23: Capital Investment Decisions
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Sample Questions
Q1) Which of the following would be considered a discounted cash flow method?
A) The payback period method
B) The unadjusted rate of return method
C) The net present value method
D) The capital budgeting method
Q2) A machine with a book value of $8,000 can be sold for $9,500. The corporation that owns the machine has taxable income of $50,000 and a tax rate of 40%. What would be the tax on the sale of the machine?
A) $600
B) $3,200
C) $3,800
D) $20,000
Q3) Cash outlays for capital assets include all the following EXCEPT:
A) The original purchase price
B) The annual operating costs
C) The salvage value
D) All of these are correct
Q4) Green Acre Farms wants to buy a machine that costs $750,000 and will increase net income an average of $200,000 per year. What is the rate of return without considering the time value of money?
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Chapter 24: New Measures of Performance
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Sample Questions
Q1) When using the just-in-time inventory system, production schedules are based on:
A) Raw material inventory levels
B) The customers' demand
C) Machine and labor capacity
D) Predetermined levels of production
Q2) Which of the following is NOT true regarding changes in accounting information that external users desire?
A) Users generally need more nonfinancial information
B) Users generally desire more objective and verifiable information
C) Users generally desire less detailed information
D) Users generally desire information more frequently than at year-end
Q3) An example of an innovation process measure is:
A) Customer requests handled on first call
B) Modifications required per design
C) Six sigma quality
D) Costs per customer service incident
Q4) List and describe the three major differences between residual income and economic value added.
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