Business Accounting
Test Questions
Course Introduction
Business Accounting provides a comprehensive overview of the fundamental principles and practices involved in recording, analyzing, and reporting financial transactions within a business environment. The course covers essential topics such as the accounting cycle, preparation of financial statements, understanding assets, liabilities, and equity, as well as the application of generally accepted accounting principles (GAAP). Students gain practical skills in managing bookkeeping tasks, interpreting financial data, and utilizing accounting information for informed business decision-making, providing a solid foundation for further study or careers in accounting and finance.
Recommended Textbook
Financial and Managerial Accounting Information for Decisions 5th Edition by John J Wild Available Study Resources on Quizplus
28 Chapters
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Page 2
Chapter 1: Introducing Accounting in Business
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Sample Questions
Q1) If beginning retained earnings was $184,300,net income for the period was $200,000 and ending retained earnings was $322,000,what was the total amount of dividend distributed for the period?
A) $62,300
B) $306,300
C) $337,700
D) $706,300
E) $137,700
Answer: A
Q2) The financial statement that reports whether the business earned a profit and also lists the types and amounts of the revenues and expenses is called a(n):
A) Balance sheet.
B) Statement of retained earnings.
C) Statement of cash flows.
D) Income statement.
E) Statement of financial position.
Answer: D
Q3) ______________ is the area of accounting aimed at serving external users.
Answer: Financial accounting
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Page 3
Chapter 2: Analyzing and Recording Transactions
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Sample Questions
Q1) Josephine's Bakery had the following assets and liabilities at the beginning and end of the current year:
\(\begin{array}{|l|r|r|}
\hline & \text { Assets } & \text { Liabilities } \\
\hline \text { Beginning of the year } & \$ 114,000 & \$ 68,000 \\
\hline \text { End of the year } & 135,000 & 73,000 \\
\hline
\end{array}\)
If the owners made no investments and dividends of $5,000 were paid during the year,what was the amount of net income earned by Josephine's Bakery during the current year?
Answer: Beginning owner's equity = $114,000 - $68,000 = $46,000
Ending owner's equity = $135,000 - $73,000 = $62,000
Increase in owner's equity = $62,000 - $46,000 = $16,000
Net income = $16,000 + $5,000 = $21,000
Q2) Hamilton Industries has total liabilities of $105 million and total assets of $350 million.Its debt ratio is 333.3%.
A)True
B)False
Answer: False
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Page 4
Chapter 3: Adjusting Accounts and Preparing Financial Statements
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Sample Questions
Q1) How is the current ratio calculated? How is it used to evaluate a company?
Answer: The current ratio is current assets divided by current liabilities.It is used to help evaluate a company's ability to pay its short term obligations.It can be used by suppliers and creditors to help them decide whether to allow a company to buy on credit and whether to loan them money.
Q2) A company shows a $600 balance in prepaid insurance in the Unadjusted Trial Balance columns of the work sheet.The Adjustments columns show expired insurance of $200.This adjusting entry results in:
A) $200 less in net income.
B) $200 more in net income.
C) $200 difference between the debit and credit columns of the unadjusted trial balance.
D) $200 of prepaid insurance.
E) An error in the financial statements.
Answer: A
Q3) The current portion of long-term debt is classified with the
Answer: current liabilities
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Chapter 4: Accounting for Merchandising Operations
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Sample Questions
Q1) Purchase returns refer to merchandise a buyer acquires but then returns to the seller.
A)True
B)False
Q2) Inventory shrinkage can be computed by comparing the ___________ of inventory with recorded quantities and amounts.
Q3) Multiple-step income statements:
A) Are required by the FASB.
B) Contain more detail than a simple listing of revenues and expenses.
C) Are required for the perpetual inventory system.
D) List cost of goods sold as an operating expense.
E) Can only be used in perpetual inventory systems.
Q4) A perpetual inventory system is able to directly measure and monitor inventory shrinkage.
A)True
B)False
Q5) Takita Company had net sales of $500,000 and cost of goods sold of $350,000.Calculate Takita's gross profit.
Q6) What is inventory shrinkage? How do managers account for shrinkage?
Q7) The acid-test ratio reflects the ___________ of a company.
Page 6
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Chapter 5: Inventories and Cost of Sales
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Q1) Under LIFO,the most recent costs are assigned to ending inventory.
A)True
B)False
Q2) Using the retail inventory method,if the cost to retail ratio is 60% and ending inventory at retail is $45,000,then estimated ending inventory at cost is $27,000.
A)True
B)False
Q3) GAAP and IFRS differ on the rules regarding LIFO as GAAP allows LIFO to assign costs to inventory and IFRS does not.
A)True
B)False
Q4) Derick Pearson and Felecia Hatcher founded Feverish Ice Cream.Why is managing inventory an important issue for their company?
Q5) Errors in the period-end inventory balances only have an impact on the current period's records and financial statements.
A)True
B)False
Q6) Explain why the lower of cost or market rule is used to value inventory.
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Chapter 6: Cash and Internal Controls
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Q1) The internal document that is used to notify the appropriate person that ordered goods have been received and to describe the quantities and condition of the goods is the____________________.
Q2) Discuss the purpose of a bank reconciliation.
Q3) Cash equivalents:
A) Are short-term, highly liquid investments.
B) Include six-month CDs.
C) Include checking accounts.
D) Are recorded in petty cash.
E) Include money orders.
Q4) A purchase requisition is a document the purchasing department sends to the vendor to place an order.
A)True
B)False
Q5) An internal control system refers to the policies and procedures managers use to __________,ensure reliable accounting,promote efficient operations,and urge adherence to company policies.
Q6) On a bank statement,deposits are shown as __________________,because the depositor's account is a liability on the bank's records.
Page 8
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Chapter 7: Accounts and Notes Receivable
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Q1) Sellers generally prefer to receive notes receivable rather than accounts receivable when the credit period is long and the receivable is for a large amount.
A)True
B)False
Q2) As long as a company accurately records total credit sales information,it is not necessary to have separate accounts for specific customers.
A)True
B)False
Q3) How are the direct write-off method and the allowance method applied in accounting for uncollectible accounts receivables?
Q4) The process of using accounts receivable as security for a loan is known as factoring accounts receivable.
A)True
B)False
Q5) If a 90-day note receivable is dated June 12,what is the maturity date of the note?
Q6) The person to whom a note is payable to is known as the ______________.
Q7) Explain the options a company has when converting its receivables to cash.
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Chapter 8: Long-Term Assets
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Q1) The units-of-production method of depreciation charges a varying amount of expense for each period of an asset's useful life depending on its usage.
A)True
B)False
Q2) A change in an accounting estimate is:
A) Reflected in past financial statements.
B) Reflected in future financial statements and also requires modification of past statements.
C) A change in a calculated amount that is part of current and future financial statements that results from new information or subsequent developments and from better insight or improved judgment.
D) Not allowed under current accounting rules.
E) Considered an error in the financial statements.
Q3) A new machine is expected to produce 600,000 units of product during its eight-year useful life.The machine cost $1,800,000 cash and it is estimated to have a $60,000 salvage value.If depreciation on the machine is calculated by the double-declining-balance method,what is the depreciation for the first year?
Q4) What are the general accounting procedures for recording asset disposals?
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Page 10
Chapter 9: Current Liabilities
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Sample Questions
Q1) The FICA tax for Social Security is 6.2% and the FICA tax for Medicare is 1.45%.An employee's share of both FICA taxes was $3,901.50.Given that this employee did not exceed the FICA earnings limitation,compute gross pay.
A) $269,068.96.
B) $62,927.42.
C) $29,846.48.
D) $51,000.
E) Zero, since the employee's pay did not exceed the FICA limit.
Q2) An employee earnings report:
A) Is the W-2.
B) Is the W-4.
C) Is the cumulative record of an employee's hours worked, gross earnings, deductions, and net pay.
D) Shows the pay period dates, hours worked, gross pay, deductions, and net pay of each employee for every pay period.
E) Is used to compute the federal income taxes withheld from each employee's gross pay.
Q3) __________ allowances are items that reduce the amount of federal income taxes owed by the individual.
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Page 11
Chapter 10: Long-Term Liabilities
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Q1) The ____________ concept is the idea that cash paid (or received)in the future has less value now than the same amount of cash paid (or received)today.
Q2) If the borrower fails to pay a mortgage,most mortgage contracts grant the lender the right to foreclose on the property that is identified as security in the contract.
A)True
B)False
Q3) Bonds and long-term notes are similar in that they are typically transacted with multiple lenders.
A)True
B)False
Q4) Identify and explain the advantages and disadvantages of bond financing.
Q5) The contract between the bond issuer and the bondholders,which identifies the rights and obligations of the parties,is called a(n):
A) Debenture
B) Bond indenture
C) Mortgage
D) Installment note
E) Mortgage contract
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Chapter 11: Corporate Reporting and Analysis
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Q1) A corporation's minimum legal capital is often defined to be the total par value of the shares:
A) Issued
B) Authorized
C) Subscribed
D) Outstanding
E) In treasury
Q2) When all of the authorized shares have the same rights and characteristics,the stock is referred to as:
A) Preferred shares under both IFRS and GAAP.
B) Common shares under both IFRS and GAAP.
C) Plain shares under IFRS and common shares under GAAP.
D) Simple shares under IFRS and pure shares under GAAP.
E) Share capital under IFRS and common shares under GAAP.
Q3) Explain how to compute dividend yield and discuss how it is used in analysis of a company's financial condition.
Q4) Explain the difference between a large stock dividend and a small stock dividend.In addition,explain how to record these two types of stock dividends.
Q5) _________________ is a corporation's own stock that has been reacquired.
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Chapter 12: Reporting Cash Flows
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Sample Questions
Q1) Use the following information about the current year's operations of a company to calculate the cash paid for merchandise.
\[\begin{array} { | l | r | }
\hline \text { Cost of good sold } & \$ 536,000 \\
\hline \text { Merchandise inventory, January 1 } & 64,800 \\
\hline \text { Merchandise inventory, December 31 } & 57,000 \\
\hline \text { Accounts payable, January 1 } & 64,400 \\
\hline \text { Accounts payable, December 31 } & 59,000 \\
\hline
\end{array}\]
A) $522,800
B) $533,600
C) $528,200
D) $536,000
E) $543,800
Q2) The FASB requires a reconciliation of net income to net cash provided or used by operating activities when the direct method is used.
A)True
B)False
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Page 14
Chapter 13: Analysis of Financial Statements
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Q1) Capital structure refers to a company's long-run financial viability and its ability to cover long-term obligations.
A)True
B)False
Q2) A company reports basic earnings per share of $3.50,cash dividends per share of $0.75,and a market price per share of $64.75.The company's dividend yield equal is equal to 21.4%.
A)True
B)False
Q3) The current ratio and acid-test ratio are used to reflect the ____________ of a business.
Q4) Explain the purpose of financial statement analysis for both external and internal users.
Q5) Comparative financial statements are reports that show financial amounts placed side by side in columns on a single statement for analysis purposes.
A)True
B)False
Q6) ______________________ ratios include the price-earnings ratio and dividend yield.
Page 15
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Chapter 14: Managerial Accounting Concepts and Principles
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Q1) ________________________ is an activity that provides financial and nonfinancial information to an organization's managers and other internal decision makers.
Q2) Period costs for a manufacturing company would flow directly to:
A)The current income statement.
B)Factory overhead.
C)The current balance sheet.
D)Job cost sheet.
E)The current manufacturing statement.
Q3) Costs that are first assigned to inventory are called:
A) Period costs
B) Product costs
C) General costs
D) Administrative costs
E) Fixed costs
Q4) _____________________ rejects the notions of "good enough" or "acceptable" and challenges employees and managers to continuously experiment with new and improved business practices.
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Q5) Define and contrast period costs and product costs.How are they reported in the financial statements of a manufacturing company?
Chapter 15: Job Order Costing and Analysis
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Q1) The Goods in Process Inventory account of a manufacturing company that uses an overhead rate based on direct labor cost has a $4,400 debit balance after all posting is completed.The cost sheet of the one job still in process shows direct material cost of $2,000 and direct labor cost of $800.Therefore,the company's overhead application rate is:
A) 40%
B) 50%
C) 80%
D) 200%
E) 220%
Q2) A manufacturing company uses an overhead allocation rate based on direct labor cost.The company's Goods in Process Inventory account has a $15,000 debit balance after all posting is completed,and the cost sheet of the one job still in process shows direct material costs of $6,600 and direct labor costs of $3,000.What is the company's overhead application rate?
Q3) Overapplied overhead is the amount by which actual overhead cost exceeds the overhead applied to products during the period.
A)True
B)False
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Page 17
Chapter 16: Process Costing
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Q1) In process cost accounting systems,when units are transferred from the Softening Department to the Hardening Department,____________________ is debited and __________________________ is credited.
Q2) In a process cost accounting system,factory wages are debited to _______________,and when direct labor is used,that account is credited and ____________________ is debited.When indirect labor is used,the ________________________ account is debited and ______________________ is credited.
Q3) What was the cost of the goods transferred out of the Bagging Department and into the finished goods inventory?
Q4) Describe the flow of materials in a process cost accounting system,including accounts used.
Q5) What are the four steps in accounting for production activity in a period?
Q6) What total cost should be assigned to all units that were completed during August?
Q7) ________ distinct groups of units must be considered in determining the equivalent units of production under the FIFO method of process costing.
Q8) What is meant by equivalent units of production,and why are they important when a process cost accounting system is used?
Page 18
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Chapter 17: Activity-Based Costing and Analysis
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Q1) The departmental overhead rate method uses a different overhead rate for each production department.
A)True
B)False
Q2) Refer to the data above.What are the overhead rates used to apply material handling (MH)and storage costs (SC)using activity-based costing?
A) MH $300/batch; SC $2.73/unit.
B) MH $300/batch; SC $.20/lb.
C) MH $525/batch; SC $.205/unit.
D) MH $700/batch; SC $.205/lb.
E) MH $700/batch; SC $8.20/lb.
Q3) Why is overhead allocation under ABC usually more accurate than either the plantwide overhead allocation method or the departmental overhead allocation method?
Q4) Overhead costs:
A) Are directly related to production.
B) Can be traced to units of product in the same way that direct materials can.
C) Cannot be traced to units of product in the same way that direct labor can.
D) Are period costs.
E) Include only fixed costs.
Page 19
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Chapter 18: Cost-Volume-Profit Analysis
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Q1) Least-squares regression is a statistical method for deriving an estimated line of cost behavior.
A)True
B)False
Q2) Three important assumptions in cost-volume-profit analysis is that (1)_______________per unit is constant,(2)_____________ per unit is constant,and (3)______________ are constant in total.
Q3) During the past year a company had total fixed costs of $700,000.Its product sold for $93 per unit.Variable costs during this time equaled $45 per unit.Next year the company is anticipating a 10% increase in total fixed costs and a $3 per unit decrease in variable costs but would like to maintain its current selling price per unit.How many units must the company sell next year to earn $1 million? (Round answer to complete units.)
A) 19,608
B) 34,706
C) 36,875
D) 20,833
E) 19,033
Q4) What is the high-low method? Briefly describe how it is applied.
Q5) Discuss how CVP analysis can be useful in planning.
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Chapter 19: Variable Costing and Performance Reporting
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Q1) What is Red and White's net income under absorption costing if 980 units are sold and operating expenses are $12,000?
A) $(1,380)
B) $(2,000)
C) $ 2,700
D) $ 6,620
E) $ 10,620
Q2) Given Advanced Company's data,and the knowledge that the product is sold for $50 per unit and operating expenses are $200,000,compute the net income under absorption costing.
A) $55,000
B) $67,500
C) $80,500
D) $122,500
E) $205,000
Q3) Toth,Inc.had net income of $950,000 based on variable costing.Beginning and ending inventories were 60,000 units and 56,000 units,respectively.Assume the fixed overhead cost per unit was $.85 for both the beginning and ending inventory.What is net income under absorption costing?
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Page 21
Chapter 20: Master Budgets and Performance Planning
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Q1) Consulting the persons affected by a budget when it is prepared can provide an effective means of motivation and cooperation.
A)True
B)False
Q2) A Company forecasts sales of $91,500 for the quarter ended December 31.Its gross profit rate is 18% of sales,and its September 30 inventory is $25,000.If the December 31 inventory is targeted at $7,500,budgeted purchases for the fourth quarter should be:
A) $57,530
B) $107,530
C) $0
D) $82,530
E) $91,000
Q3) One of the major benefits of formal budgeting is the positive effect it can have on employee attitudes.
A)True
B)False
Q4) Describe at least five benefits of budgeting.
Q5) What are rolling budgets? Why are rolling budgets prepared?
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Chapter 21: Flexible Budgets and Standard Costs
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Q1) The entry to record the material variances would include a:
A) Credit to Goods in Process for $133,750.
B) Debit to Direct Material Price Variance for $13,750.
C) Credit to Direct Material Quantity Variance for $13,750.
D) Debit to Goods in Process for $120,000.
E) Debit to Raw Materials for $120,000.
Q2) Bartels Corp.produces woodcarvings.It takes two hours of direct labor to produce a carving.Bartels' standard labor cost is $12 per hour.During August,Bartels produced 10,000 carvings and used 21,040 hours of direct labor at a total cost of $250,376.What is Bartels' labor efficiency variance for August?
A) $10,376 unfavorable
B) $2,104 unfavorable
C) $2,104 favorable
D) $12,480 unfavorable
E) $ 12,480 favorable
Q3) The difference between the actual overhead cost incurred and the standard overhead applied is the __________________________.
Q4) A fixed budget is also called a _____________ budget.
Q5) What are the four steps in the effective management of variance analysis?
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Chapter 22: Decentralization and Performance Measurement
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Q1) Which of the following is an example of a financial performance measure that would be found in a balanced scorecard?
A) Percentage of on-time delivery.
B) Residual income.
C) Customer satisfaction.
D) Cycle time.
E) Employee turnover.
Q2) Costs that the manager does not have the power to determine or strongly influence are:
A) Variable costs
B) Uncontrollable costs
C) Indirect costs
D) Direct costs
E) Joint costs
Q3) Cycle efficiency is the ratio of value-added time to total cycle time.
A)True
B)False
Q4) A __________________________ helps control costs and expenses and evaluates managers' performance by assigning costs and expenses to the managers responsible for controlling them.
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Chapter 23: Relevant Costing for Managerial Decisions
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Q1) A company expects to produce and sell 9,000 units of a single product.Management desires an 18% return on assets of $1,750,000.The following additional company information is available: \(\begin{array}{lr}
\text { Variable costs (per unit) } & \\
\text { Production costs } & \$ 79 \\
\text { Nonproduction costs } & \$ 5 \\
\text { Fixed costs (in total) } &\\
\text { Overhead } & \$ 279,000 \\
\text { Nonproduction } & \$ 90,000
\end{array}\)
Compute markup per unit.Assume that markup percentage equals desired profit divided by total costs.
A) $35
B) $84
C) $110
D) $125
E) $160
Q2) Relevant costs are also known as ___________________.
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Chapter 24: Capital Budgeting and Investment Analysis
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Q1) A company is considering a proposal to invest $22,000 in a project that would provide the following net cash flows:
\[\begin{array} { l r }
\text { Year 1 } & \$ 2,000 \\
\text { Year 2 } & 4,000 \\
\text { Year 3 } & 15,000 \\
\text { Year 4 } & 18,000
\end{array}\]
Compute the project's payback period.
Q2) A company is evaluating the purchase of a machine for $900,000 with a six-year useful life and no salvage value.The company uses straight-line depreciation and it assumes that the annual net cash flow from using the machine will be received uniformly throughout each year.In calculating the accounting rate of return,what is the company's average investment?
Q3) The time value of money concept:
A) Means that a dollar today is worth less than a dollar tomorrow.
B) Means that a dollar tomorrow is worth more than a dollar today.
C) Means that a dollar today is worth more than a dollar tomorrow.
D) Means that "Time is money."
E) Does not involve the concept of compound interest.
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Chapter 25: Accounting With Special Journals
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Q1) The general journal is used for transactions not covered by special journals and for regular,adjusting,closing,and correcting entries.
A)True
B)False
Q2) ____________________ is the accounting system component that keeps data in a form accessible to information processors.
Q3) The five fundamental principles of accounting information systems are:
A) Control, accountability, relevance, compatibility, and flexibility.
B) Control, relevance, compatibility, flexibility, and cost-benefit.
C) Control, relevance, compatibility, flexibility, and safety.
D) Control, relevance, compatibility, timeliness, and cost-benefit.
E) Historical cost, relevance, compatibility, flexibility, and cost-benefit.
Q4) ___________________ processing enters and processes data as soon as source documents are available.
Q5) Enterprise resource planning software is primarily used for recording journal entries. A)True B)False
Q6) Describe the posting process for special journals.
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Chapter 26: Time Value of Money
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Q1) A company is setting aside $21,354 today and wishes to have $30,000 at the end of three years for a down payment on a piece of property.What interest rate must the company earn?
Q2) Sandra has a savings account that is now $50,000.She started with $28,225 and earned interest at 10% compounded annually.It took five years to accumulate the $50,000.
A)True
B)False
Q3) An annuity is a series of equal payments occurring at equal intervals.
A)True B)False
Q4) The number of periods in a future value calculation can only be expressed in years. A)True
B)False
Q5) _____________ is a borrower's payment to the owner of an asset for its use.
Q6) Big League Sports borrowed $883,212 and must make annual year-end payments of $120,000 each.If the applicable interest rate is 6%,how many years will it take Big League Sports to pay off the loan?
Q7) Explain the concept of the future value of an annuity.
Page 28
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Chapter 27: Investments and International Operations
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176 Verified Questions
176 Flashcards
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Sample Questions
Q1) What are the accounting basics for debt securities,including recording their acquisition,interest earned and their disposal?
Q2) Micron owns 35% of Martok.Martok pays a total of $47,000 in cash dividends for the period.Micron's entry to record the dividend transaction would include a:
A) Credit to Long-Term Investments for $16,450.
B) Debit to Long-Term Investments for $16,450.
C) Debit to Cash for $47,000.
D) Credit to Cash for $16,450.
E) Credit to Investment Revenue for $47,000.
Q3) Investments in debt and equity securities that the company actively manages and trades for profit are referred to as short-term investments in:
A) Available-for-sale securities.
B) Held-to-maturity securities.
C) Trading securities.
D) Realizable securities.
E) Liquid securities.
Q4) ____________________________ are debt and equity securities that a company intends to actively manage and trade for a profit.
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Chapter 28: Accounting for Partnerships
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126 Verified Questions
126 Flashcards
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Sample Questions
Q1) Arthur,Barnett and Cummings form a partnership.Arthur contributes $250,000 cash and Barnett contributes $230,000 in cash.Cummings contributes equipment worth $255,000.Prepare the single journal entry to record the formation of this partnership.
Q2) When a partner is unable to pay a capital deficiency:
A) The partner must take out a loan to cover the deficient balance.
B) The deficiency is absorbed by the remaining partners.
C) The partnership ends.
D) The deficient partner has no personal liability to pay the deficiency.
E) The partnership must be liquidated.
Q3) In the absence of a partnership agreement,the law says that income of a partnership will be shared equally by the partners.
A)True
B)False
Q4) If partners devote their time and services to their partnership,their salaries are expenses on the income statement.
A)True
B)False
Q5) The life of a partnership is ____________________ in duration.
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