Business Accounting
Pre-Test Questions
Course Introduction
Business Accounting introduces students to the fundamental principles and practices of accounting within a business context. The course covers key topics such as recording financial transactions, preparing and interpreting financial statements, understanding the accounting cycle, and applying basic accounting concepts to decision-making processes. Emphasis is placed on the practical application of accounting information in real-world business scenarios, enabling students to analyze financial data, maintain accurate records, comply with relevant regulations, and contribute effectively to organizational financial management.
Recommended Textbook
Financial Managerial Accounting 14th Edition by Carl Warren
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Chapter 1: Introduction to Accounting and Business
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Sample Questions
Q1) There are four transactions that affect stockholders' equity.
(a)What are the two types of transactions that increase stockholders' equity?
(b)What are the two types of transactions that decrease stockholders' equity?
Answer: (a)Purchase of additional common stock by stockholders and increase in revenues (b)Payment of dividends to stockholders and increase in expenses
Q2) Krammer Company has liabilities equal to one fourth of the total assets.Krammer's stockholders' equity is $45,000.Using the accounting equation,what is the amount of liabilities for Krammer?
Answer: Assets = Liabilities + Stockholders' Equity 4x = x + $45,000 3x = $45,000 x = $15,000 in liabilities
Q3) Paying an account payable increases liabilities and decreases assets.
A)True
B)False Answer: False
Q4) Dividends paid to stockholders decrease assets and increase equity.
A)True
B)False Answer: False
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Chapter 2: Analyzing Transactions
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Sample Questions
Q1) In accordance with the debit and credit rules,which of the following is true?
A) Debits increase assets.
B) Credits increase assets.
C) Debits increase both assets and common stock.
D) Credits increase both assets and liabilities.
Answer: A
Q2) Debiting the cash account will increase the account.
A)True
B)False
Answer: True
Q3) Office supplies were sold by Janer's Cleaning Service at cost to another repair shop,with cash received.Which of the following entries for Janer's Cleaning Service records this transaction?
A) Office Supplies,debit; Cash,credit
B) Office Supplies,debit; Accounts Payable,credit
C) Cash,debit; Office Supplies,credit
D) Accounts Payable,debit; Office Supplies,credit
Answer: C
Q4) Prepare a trial balance,listing the accounts in their proper order.
Answer: 11ea8952_b5b6_efd3_861b_e994a5741833_TB6238_00
Page 4
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) (a)Explain the differences between accrued revenues and unearned revenues.
(b)Explain the differences between accrued expenses and prepaid expenses.
(c)Give an example of each.
Answer: 11ea8952_b5ae_3da8_861b_6133c7c294a2_TB6238_00
Q2) The adjusting entry for gym memberships earned that were previously recorded in the unearned gym memberships account is
A) debit Unearned Gym Memberships; credit Gym Memberships Revenue
B) debit Gym Memberships Revenue; credit Unearned Gym Memberships
C) debit Unearned Gym Memberships; credit Prepaid Gym Memberships
D) debit Gym Memberships Expense; credit Unearned Gym Memberships
Answer: A
Q3) Deferred revenue is revenue that is
A) earned and the cash has been received
B) earned but the cash has not been received
C) not earned and the cash has not been received
D) not earned but the cash has been received
Answer: D
Q4) For each of the following,journalize the necessary adjusting entry:
Answer: 11ea8952_b5ae_3da9_861b_210253fcc7e3_TB6238_00 11ea8952_b5ae_64ba_861b_895f609b4a0f_TB6238_00
Page 5
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Notes receivable due in 390 days appear on the
A) balance sheet in the current assets section
B) balance sheet in the noncurrent assets section
C) balance sheet in the current liabilities section
D) income statement as an expense
Q2) After all of the account balances have been extended to the Balance Sheet columns of the end-of-period spreadsheet,the totals of the debit and credit columns show debits of $37,686 and credits of $41,101.This indicates that
A) neither net income or loss can be calculated because it is found on the income statement
B) the company has a net loss of $3,415 for the period
C) the company has a net income of $3,415 for the period
D) the amounts are out of balance and need to be corrected
Q3) Determine the net income (loss)for the period.
A) net income $9,250
B) net loss $790
C) net loss $5,670
D) net income $3,580
Q4) Describe a classified balance sheet.
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Chapter 5: Accounting for Merchandising Businesses
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Sample Questions
Q1) Sales to customers who use bank credit cards,such as MasterCard and Visa,are generally treated as
A) sales on account
B) sales returns
C) cash sales
D) sales when the credit card company remits the cash
Q2) Sales is equal to the cost of goods sold less the gross profit.
A)True
B)False
Q3) If the buyer is to pay the freight costs of delivering merchandise,delivery terms are stated as
A) FOB shipping point
B) FOB destination
C) FOB n / 30
D) FOB buyer
Q4) Which of the following accounts usually has a debit balance?
A) Accounts Payable
B) Sales Tax Payable
C) Sales
D) Inventory
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Chapter 6: Inventories
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Sample Questions
Q1) Average inventory is computed by adding the inventory at the beginning of the period to the inventory at the end of the period and dividing by two.
A)True
B)False
Q2) During periods of increasing costs,the use of the FIFO method of costing inventory will result in a greater amount of net income than would result from the use of the LIFO cost method.
A)True
B)False
Q3) The specific identification inventory method should be used when the inventory consists of identical,low-cost units that are purchased and sold frequently.
A)True
B)False
Q4) If Addison uses FIFO,the cost of the ending inventory on September 30 is
A) $800
B) $650
C) $750
D) $700
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Page 8
Chapter 7: Internal Control and Cash
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Sample Questions
Q1) A $150 petty cash fund has cash of $54 and receipts of $83.The journal entry to replenish the account would include a
A) credit to Petty Cash for $29
B) debit to Cash for $83
C) debit to Cash Short and Over for $13
D) credit to Cash for $54
Q2) A check outstanding for two consecutive months will appear only on the first month's bank reconciliation.
A)True
B)False
Q3) The amount of deposits in transit is included on the bank reconciliation as a(n)
A) deduction from the balance per the company's books
B) deduction from the balance per bank statement
C) addition to the balance per bank statement
D) addition to the balance per company books
Q4) An element of internal control is
A) risk assessment
B) journals
C) subsidiary ledgers
D) controlling accounts
Page 9
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Chapter 8: Receivables
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Sample Questions
Q1) What is the type of account and normal balance of Allowance for Doubtful Accounts?
A) contra asset,credit
B) asset,debit
C) asset,credit
D) contra asset,debit
Q2) The accounts receivable turnover measures the length of time in days it takes to collect a receivable.
A)True
B)False
Q3) GAAP requires companies with a large amount of receivables to use the allowance method.
A)True
B)False
Q4) The accounts receivable turnover ratio is computed by dividing total gross sales by the average net receivables during the year.
A)True
B)False
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Page 10
Chapter 9: Long-Term Assets: Fixed and Intangible
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Sample Questions
Q1) When the amount of use of a fixed asset varies from year to year,the method of determining depreciation expense that best matches allocation of cost with revenue is
A) double-declining-balance method
B) straight-line method
C) units-of-output method
D) MACRS
Q2) The depreciation method that does not use residual value in calculating the first year's depreciation expense is
A) straight-line
B) units-of-output
C) double-declining-balance
D) sum-of-the-digits
Q3) The higher the fixed asset turnover, the
A) less efficiently a company is using its fixed assets in generating sales
B) more efficiently a company is using its fixed assets in generating sales
C) more efficiently a company is using its current assets in generating sales
D) more efficiently a company is using its intangible assets in generating sales
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11
Chapter 10: Liabilities: Current,installment Notes,and
Contingencies
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Sample Questions
Q1) An aid in internal control over payrolls that indicates employee attendance is
A) time card
B) voucher system
C) special payroll bank account
D) fringe benefits
Q2) Assuming a 360-day year,when a $20,000,90-day,5% interest-bearing note payable matures,total payment will be
A) $21,000
B) $1,000
C) $20,250
D) $250
Q3) A current liability is a debt that is reasonably expected to be paid
A) between 6 months and 18 months
B) out of currently recognized revenues
C) within one year
D) out of cash currently on hand
Q4) Payroll taxes are based on the employee's net pay.
A)True
B)False
Q5) List five internal controls that relate directly to payroll.
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Chapter 11: Liabilities: Bonds Payable
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Q1) When the bonds are sold for more than their face value,the carrying amount of the bonds is equal to
A) face value
B) face value plus the unamortized discount
C) face value minus the unamortized premium
D) face value plus the unamortized premium
Q2) The Levi Company issued $200,000 of 12% bonds on January 1 of the current year at face value.The bonds pay interest semiannually on January 1 and July 1.The bonds are dated January 1,and mature in five years,on January 1.The total interest expense related to these bonds for the current year ending on December 31 is
A) $2,000
B) $6,000
C) $18,000
D) $24,000
Q3) The effective interest rate method of amortizing a bond discount or premium is the preferred method.
A)True
B)False
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Chapter 12: Corporations: Organization, stock Transactions, and Dividends
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Q1) A corporation has 50,000 shares of $25 par stock outstanding that has a current market value of $150 per share.If the corporation issues a 5-for-1 stock split,the market value of the stock after the split will be approximately
A) $25
B) $150
C) $5
D) $30
Q2) The dollar amount assigned to each share of stock
A)authorized shares
B)issued shares
C)outstanding shares
D)par value
E)common stock
F)preferred stock
G)Paid-In Capital in Excess of Par
H)transfer agent
Q3) The main source of paid-in capital is from issuing stock.
A)True
B)False
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Chapter 13: Statement of Cash Flows
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Q1) Free cash flow is
A) all cash in the bank
B) cash from operations
C) cash from financing less cash used to purchase fixed assets to maintain productive capacity and cash used for dividends
D) cash flow from operations less cash used to purchase fixed assets to maintain productive capacity
Q2) A company purchases equipment for $32,000 cash.This transaction should be shown on the statement of cash flows under
A) investing activities
B) financing activities
C) noncash investing and financing activities
D) operating activities
Q3) Under the indirect method,expenses that do not affect cash are added to net income in the operating activities section of the statement of cash flows.
A)True
B)False
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Chapter 14: Financial Statement Analysis
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Sample Questions
Q1) Based on the data for Harding Company,what is the amount of working capital?
A) $238,000
B) $128,000
C) $168,000
D) $203,000
Q2) Which of the following is considered an unusual item affecting the prior period's income statement?
A) a change in accounting principles
B) fixed asset impairments
C) sale of company stores in Florida
D) discontinued operations
Q3) The percentage analysis of increases and decreases in individual items in comparative financial statements is called
A) vertical analysis
B) solvency analysis
C) profitability analysis
D) horizontal analysis
Q4) What information is generally included in the Management Discussion and Analysis (MD&A)section of a corporate annual report?
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Chapter 15: Introduction to Managerial Accounting
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Sample Questions
Q1) Finished goods inventory is reported on the
A) income statement as a period cost
B) balance sheet as a long-term asset
C) balance sheet as a current asset
D) income statement as revenue
Q2) Product costs
A) appear only on the balance sheet
B) appear only on the income statement
C) are expensed as costs are incurred for direct labor,direct material,and factory overhead
D) appear on both the income statement and balance sheet
Q3) Laramie Technologies had the following data:
Cost of materials used $50,000
Direct labor costs 56,000
Factory overhead 28,000
Work in process,beg. 45,000
Work in process,end. 32,000
Calculate the cost of goods manufactured.
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Chapter 16: Job Order Costing
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Sample Questions
Q1) A process cost accounting system is best used by manufacturers of like units of product that are not distinguishable from each other during a continuous production process.
A)True
B)False
Q2) A widely used activity base for developing factory overhead rates in highly automated settings is
A) direct labor hours
B) direct labor dollars
C) direct materials
D) machine hours
Q3) factory depreciation
A)direct labor
B)direct materials
C)factory overhead
D)not a product cost
Q4) The job order costing system is used by service firms to determine revenues,expenses,and ultimately profit.
A)True
B)False
Page 18
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Chapter 17: Process Cost Systems
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Q1) The portion of whole units that were completed with respect to either materials or conversion costs within a given accounting period is the definition of
A) units started and completed
B) equivalent units
C) conversion costs
D) ending work in process
Q2) If 10,000 units that were 50% completed are in process at November 1,90,000 units were completed during November,and 20,000 were 20% completed at November 30,the number of equivalent units of production for November was 90,000.(Assume no loss of units in production and that inventories are costed by the first-in,first-out method.)
A)True
B)False
Q3) The FIFO method separates work done on beginning inventory in the previous period from work done on it in the current period.
A)True
B)False
Q4) Explain the concept of equivalent units.Give an example to validate your explanation.
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Chapter 18: Activity-Based Costing
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Q1) Zorn Co.budgeted $600,000 of factory overhead cost for the coming year.Its plantwide allocation base,machine hours,is budgeted at 100,000 hours.Budgeted units to be produced are 200,000 units.Zorn's plantwide factory overhead rate is $6.00 per unit.
A)True
B)False
Q2) The Camper's Edge Factory produces two products - canopies and tents.It has two separate departments - Cutting and Sewing.The budget is $350,000 for the Cutting Department and $400,000 for the Sewing Department.Each canopy requires 2 hours of cutting and 1 hour of sewing.Each tent requires 1 hour of cutting and 6 hours of sewing.The budget estimates that 20,000 canopies and 10,000 tents will be manufactured during the year.Determine (a)the total number of budgeted direct labor hours for the year in each department,(b)the departmental factory overhead rates for both departments,and (c)the factory overhead allocated per unit of each product using the department factory overhead allocation rates using direct labor hours as the base.
Q3) Activity-based costing can be used to allocate period costs to various products that the company sells.
A)True
B)False
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Chapter 19: Cost-Volume-Profit Analysis
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Q1) What was Carter Co.'s unit contribution margin of E?
A) $24
B) $60
C) $92
D) $20
Q2) If fixed costs are $46,800,the unit selling price is $42,and the unit variable costs are $24,what is the break-even sales (units)if the variable costs are decreased by $2?
A) 2,127
B) 1,114
C) 2,340
D) 1,950
Q3) The dollars available from each unit of sales to cover fixed cost and profit is the unit variable cost.
A)True
B)False
Q4) If a business had a capacity of $10,000,000 of sales,actual sales of $6,000,000,break-even sales of $4,200,000,fixed costs of $1,800,000,and variable costs of 60% of sales,what is the margin of safety expressed as a percentage of sales?
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Chapter 20: Variable Costing for Management Analysis
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Q1) If variable cost of goods sold totaled $90,000 for the year (18,000 units at $5.00 each)and the planned variable cost of goods sold totaled $86,400 (16,000 units at $5.40 each),the effect of the unit cost factor on the change in contribution margin is:
A) $6,400 decrease
B) $6,400 increase
C) $7,200 increase
D) $7,200 decrease
Q2) In determining cost of goods sold,two alternate costing concepts can be used: absorption costing and variable costing.
A)True
B)False
Q3) For short-run production planning,information in the variable costing format is more useful to management than is information in the absorption costing concept format.
A)True
B)False
Q4) Variable costing is also known as direct costing.
A)True
B)False
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22
Chapter 21: Budgeting
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Q1) If Division Inc.expects to sell 200,000 units in the current year,desires ending inventory of 24,000 units,and has 22,000 units on hand as of the beginning of the year,the budgeted volume of production for the year is 202,000 units.
A)True
B)False
Q2) The budgeted volume of production is normally computed as the sum of (1)the expected sales volume and (2)the desired ending inventory.
A)True
B)False
Q3) The first budget to be prepared is usually the sales budget.
A)True
B)False
Q4) What is the amount of cash excess or deficiency (after considering the minimum cash balance required)for March?
A) excess of $214,200
B) excess of $15,800
C) deficiency of $60,000
D) excess of $25,300
Q5) What is a cash budget? How does management use a cash budget?
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Chapter 22: Evaluating Variances From Standard Costs
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Q1) Which of the following would not lend itself to applying direct labor variances?
A) help desk assistant
B) research and development scientist
C) customer service personnel
D) telemarketer
Q2) Standard cost variances are usually not reported in reports to stockholders.
A)True
B)False
Q3) What is the amount of the fixed factory overhead volume variance?
A) $12,500 favorable
B) $10,000 unfavorable
C) $12,500 unfavorable
D) $10,000 favorable
Q4) Calculate the direct materials quantity variance.
A) $4,512.50 unfavorable
B) $4,512.50 favorable
C) $4,750.00 unfavorable
D) $4,750.00 favorable
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Chapter 23: Evaluating Decentralized Operations
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Q1) The profit margin for Mason is
A) 7.1%
B) 20%
C) 15.2%
D) 14.1%
Q2) Which of the following is not a measure that management can use in evaluating and controlling investment center performance?
A) rate of return on investment
B) negotiated price
C) residual income
D) income from operations
Q3) The rate of return on investment may be computed by multiplying investment turnover by the profit margin.
A)True
B)False
Q4) The best measure of managerial efficiency in the use of investments in assets is
A) rate of return on stockholders' equity
B) investment turnover
C) income from operations
D) inventory turnover
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Chapter 24: Differential Analysis and Product Pricing
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Q1) Cost-plus methods determine the normal selling price by estimating a cost amount per unit and adding a markup.
A)True
B)False
Q2) Make-or-buy decisions should be made only with related parties.
A)True
B)False
Q3) Opportunity cost is the amount of increase or decrease in cost that would result from the best available alternative to the proposed use of cash or its equivalent.
A)True
B)False
Q4) The total cost concept includes all manufacturing costs plus selling and administrative expenses in the cost amount to which the markup is added to determine product price.
A)True B)False
Q5) The differential revenue of producing Product P is $82 per pound. A)True B)False
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Chapter 25: Capital Investment Analysis
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Q1) All of the following qualitative considerations may impact upon capital investment analysis except
A) time value of money
B) employee morale
C) the impact on product quality
D) manufacturing flexibility
Q2) All of the following are factors that may complicate capital investment analysis except
A) possible leasing alternatives
B) changes in price levels
C) sunk costs
D) federal income tax ramifications
Q3) Using the tables above,if an investment is made now for $23,500 that will generate a cash inflow of $8,000 a year for the next 4 years,what would be the net present value of the investment,assuming an earnings rate of 10%?
A) $23,500
B) $16,050
C) $25,360
D) $1,860
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Chapter 26: Lean Manufacturing and Activity Analysis
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Q1) The budgeted cell conversion cost rate is very similar to the predetermined factory rate because both include only factory overhead costs.
A)True
B)False
Q2) Accounting for lean operations requires fewer transactions because
A) large batches of inventory are combined in a smaller number of transactions.
B) costs are accumulated in one department and then transferred to the next department.
C) combined material and conversion costs are transferred to finished goods.
D) costs are transferred from department to department allowing for better controls in costs.
Q3) From the above schedule,calculate the (a)prevention and (b)appraisal costs.
Q4) From the above schedule,compute the percentage of non-value-added activities.
Q5) Which of the following is an example of a nonfinancial measure?
A) lead time
B) setup time
C) units scrapped
D) all of the above
Q6) From the above schedule,calculate the internal failure costs.
Q7) From the above schedule,calculate the external failure costs.
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