Accounting for Business Decisions
Exam Answer Key
Course Introduction
Accounting for Business Decisions introduces students to fundamental accounting principles and practices relevant to effective decision-making in business environments. The course covers the preparation and analysis of financial statements, budgeting, cost-volume-profit analysis, and various performance measurement tools. Emphasizing both financial and managerial accounting perspectives, students learn how to interpret accounting information, evaluate alternative courses of action, and make informed business decisions that support organizational objectives. Through case studies and practical exercises, the course develops analytical skills essential for managing resources, controlling costs, and maximizing value in today's competitive marketplace.
Recommended Textbook
Horngren's Financial and Managerial Accounting 6th Edition by Tracie L. Miller Nobles
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Chapter 1: Accounting and the Business Environment
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Sample Questions
Q1) Jason Repair Corporation incurred $1,500 as advertising expense and promised to pay the advertising agency within 30 days. Which of the following will decrease as a result of this transaction?
A) Assets
B) Stockholders' equity
C) Liabilities
D) Revenues
Answer: B
Q2) ________ are professional accountants who serve the general public, not one particular company.
A) Certified public accountants
B) Financial managers
C) Internal auditors
D) Controllers
Answer: A
Q3) Common stock represents the basic ownership of every corporation.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Recording Business Transactions
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Sample Questions
Q1) The following transactions for the month of March have been journalized and posted to the proper accounts. Mar, 1 The business received \(\$ 7,000\) cash and issued common stock to stockholders.
Mar. 2 Paid the first month's rent of \(\$ 700\).
Mar. 3 Purchased equipment by paying $3,000 cash and executing a note payable for $8,000.
Mar. 4 Iurchased office supplies for \(\$ 700 \mathrm { cash }\).
Mar. 5 Eilled a client for \(\$ 10,000\) of design services completed. Mar. 6 Received \(\$ 7,800\) on account for the services previously recorded. What is the balance in Cash on March 6?
A) $11,100
B) $10,400
C) $13,400
D) $11,800
Answer: B
Q2) In a trial balance, total debits must always equal total credits.
A)True
B)False
Answer: True
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Page 4
Chapter 3: The Adjusting Process
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Sample Questions
Q1) If a company fails to make an adjusting entry to record accrued expenses, the liabilities and net income will be overstated.
A)True
B)False
Answer: False
Q2) Adjusting entries are needed to correctly measure the ________.
A) ending balance in the Cash account
B) net income (loss) on the balance sheet
C) net income (loss) on the income statement
D) beginning balance in the Cash account
Answer: C
Q3) On January 1, 2018, the Prepaid Insurance account of Dogwood, Inc. had a beginning balance of $2,700. Three months of insurance premiums remain in this beginning balance. On February 21, 2018, the company paid an annual insurance premium in the amount of $4,300 for the period beginning March 1. On February 28, 2018, the balance in Prepaid Insurance is $1,800.
A)True
B)False
Answer: False
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) The following contains information from the records of Bourne Engineers and Architects. \(\begin{array}{c}\text {Boume Engineers and Architects}\\
\text {Selected Financial Information}\\
\text {December 31,2019}\\
\begin{array}{|l|r|}
\hline\text { Current Assets } & \$ 80,000 \\
\hline \text { Current Liabilities } & 42,000 \\
\hline \text { Long-Term Assets } & 98,000 \\
\hline \text { Long-Term Liabilities } & 65,000 \\
\hline \text { Total Revenues } & 55,000 \\
\hline \text { Total Expenses } & 32,000\\
\hline
\end{array}\end{array}\) Calculate the current ratio. (Round your answer to two decimal places.)
A) 1.51
B) 2.25
C) 0.59
D) 1.90
Q2) List the steps of the accounting cycle that take place at the end of the period.
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Page 6
Chapter 5: Merchandising Operations
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Sample Questions
Q1) For each of the following statements, state whether it applies to a periodic inventory system (periodic) or a perpetual inventory system (perpetual).
\[\begin{array} {| l | l| }
\hline \text { Statement } & \text { Periodic or Perpetual } \\
\hline \text { Merchandise inventory and purchasing } & \\
\text { pystems are integrated with the records } & \\
\text { for Accounts Receivable and Sales } & \\
\text { Revenue. } & \\
\hline \text { This system is often used by restaurants } & \\
\text { and small retail stores. } & \\
\hline \text { The physical count captures inventory } & \\
\text { transactions that are not recorded by the } & \\
\text { electronic system. }\\
\hline
\end{array}\]
Q2) A wholesaler is a merchandiser who buys goods from a manufacturer and then sells the goods to retailers.
A)True
B)False
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Page 7
Chapter 6: Merchandise Inventory
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Sample Questions
Q1) Given the same purchase and sales data, and assuming the cost of inventory is rising, the costing methods for inventory will result in different amounts for net income.
A)True
B)False
Q2) Which of the following inventory costing methods uses the costs of the oldest purchases to calculate the value of the ending inventory?
A) specific identification
B) weighted-average
C) last-in, first-out
D) first-in, first-out
Q3) A company reports in its financial statements that it uses the FIFO method of inventory costing. This is an example of the disclosure principle.
A)True
B)False
Q4) A higher days' sales in inventory is preferable.
A)True
B)False
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8
Chapter 7: Internal Control and Cash
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Sample Questions
Q1) Why is it necessary to journalize transactions from the bank reconciliation? List two examples of items that need to be journalized.
Q2) When a lock-box system is used, a bank employee empties the box daily and records the deposits in the company's journal.
A)True
B)False
Q3) Journal entries are required if the bank reconciliation includes outstanding checks. A)True
B)False
Q4) At Carlson Services, the cashier collects checks and cash from customers, and the junior accountant records the transactions in the journal. The controller approves the journal entries and bank reconciliations. The treasurer signs checks and approves contracts. Which internal control procedure is exemplified in the above situation?
A) assignment of responsibilities
B) competent, reliable, and ethical personnel
C) separation of duties
D) documents
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Chapter 8: Receivables
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Sample Questions
Q1) If a customer makes payment on a receivable that has already been written off, the receivable account is reestablished.
A)True
B)False
Q2) Modern Designs is a new business. During its first year of operations, credit sales were $45,000 and collections of credit sales were $34,000. One account, $700, was written off. Management uses the percent-of-sales method to account for bad debts expense and estimates 3% of credit sales to be uncollectible. Bad debts expense for the first year of operations is ________.
A) $650
B) $1,350
C) $700
D) $2,370
Q3) Define net realizable value. How is net realizable value affected when a receivable is written off under the allowance method?
Q4) By accepting credit and debit cards, companies are able to attract more customers.
A)True
B)False
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Page 10
Chapter 9: Plant Assets, Natural Resources, and Intangibles
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Sample Questions
Q1) On January 2, 2017, Barnes Enterprises purchased equipment for $42,000 cash, expecting the equipment to remain in service for five years, with a $4,000 residual value. Barnes uses straight-line depreciation. On April 30, 2019, Barnes sold the equipment for $20,000 cash.
Requirement:
Prepare the journal entries to record the purchase of the equipment; depreciation for 2017, 2018, and 2019; and the sale of the equipment. Omit explanations and round to the nearest dollar.
Q2) The gain or loss on the sale of a plant asset is determined by comparing the market value of assets received with the ________ of asset sold.
A) book value
B) residual value
C) original cost
D) salvage value
Q3) The asset turnover ratio measures ________.
A) how efficiently a business uses its sales to finance the assets
B) how efficiently a business uses its average total assets to generate sales
C) how efficiently a business uses its net profit to finance the assets
D) how the ending inventory helps increase the value of assets
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Page 11
Chapter 10: Investments
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Sample Questions
Q1) Which of the following is true of the Fair Value Adjustment - Trading account for trading debt investments?
A) It will always have a credit balance.
B) It will always have a debit balance.
C) It is considered as an adjunct account if it has a credit balance.
D) It is considered as an adjunct account if it has a debit balance.
Q2) Controlling interest equity investments are debt securities in which the investor owns more than 50% of the investee's voting stock.
A)True
B)False
Q3) Trading debt investments are classified on the balance sheet as ________.
A) current or long-term assets, depending on how long the investor intends to hold the debt securities
B) current assets
C) intangible assets
D) current liabilities
Q4) List and briefly describe the method used to account for investments in equity securities with more than 50% ownership.
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Page 12
Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) On September 1, 2018, Tri-Cities, Inc. borrowed $125,000 by signing a nine-month, 7.2% note payable. Prepare the journal entry to accrue interest expense on December 31, 2018. Omit explanation.
Q2) Which of the following deductions is paid by both the employer and employee?
A) federal income taxes
B) federal unemployment taxes
C) FICA taxes
D) SUTA taxes
Q3) When borrowing cash from a bank, the business is required to sign a promissory note stating that the business will pay the principal plus interest at a specified maturity date.
A)True B)False
Q4) Southwest, Inc. records indicate that January sales on account were $109,000. The company's management estimates warranty expense to be 3.6% of sales. Prepare the journal entry to record warranty expense. Omit explanation.
Q5) The entry to accrue the warranty payable includes a credit to Warranty Expense. A)True B)False
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Chapter 12: Long-Term Liabilities
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Sample Questions
Q1) Long-term liabilities can be structured either with an equal principal payment or with an equal total payment.
A)True
B)False
Q2) Financial leverage occurs when a company earns less income on borrowed money than the related interest expense.
A)True
B)False
Q3) When using the effective-interest amortization method, the discount amortization is the excess of the calculated interest expense based on the stated interest rate over the interest payment.
A)True
B)False
Q4) Which of the following is the amount the borrower must pay back to the bondholders at maturity?
A) market value
B) present value
C) stated interest value
D) principal amount
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Chapter 13: Stockholders Equity
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Sample Questions
Q1) \[\begin{array} { | l | l | }
\hline \text { Term } & \text { Definition } \\
\hline \text { Authorized stock } & \\
\hline \text { Preferred stock } & \\
\hline \text { Stated value stock } & \\
\hline \end{array}\]
Q2) On November 1, 2018, Nada, Inc. declared a dividend of $5.00 per share on common stock. Nada, Inc. has 20,000 shares of common stock outstanding and no preferred stock. The date of record is November 15, and the payment date is November 30, 2018. Which of the following is the journal entry needed on November 30, 2018?
A) Debit Cash Dividends $100,000, and credit Dividends Payable-Common $100,000.
B) Debit Dividends Payable-Common $100,000, and credit Cash $100,000.
C) Debit Cash $100,000, and credit Dividends Payable-Common $100,000.
D) Debit Cash Dividends $100,000, and credit Cash $100,000.
Q3) A corporation is a business organized under federal law that is a separate legal entity.
A)True
B)False
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Page 15
Chapter 14: The Statement of Cash Flows
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Q1) Louisiana Company uses the indirect method to prepare its statement of cash flows. Refer to the following portion of the comparative balance sheet: \(\begin{array}{c}\text {Louisiana Company}\\
\text {Comparative Balance Sheet}\\
\text {December 31,2019 and 2018}\\\begin{array}{|l|r|r|r|}
\hline& 2019 & 2018 & \text { Increase/(Decrease) } \\
\hline \text { Common Stock } & \$ 32,000 & \$ 2400 & \$ 29,600 \\
\hline \text { Retained Earnings } & 123,000 & 76,000 & 47,000 \\
\hline \text { Treasury Stock } & (15,000) & (8200) & (6800) \\
\hline \text { Total Equity } & \$ 140,000 & \$ 70,200 & \$ 69,800 \\
\hline\end{array}
\end{array}\) Note:
1) There were no stock retirements during the year.
2) There were no sales of treasury stock during the year.
Compute the cash flow from transactions involving treasury stock.
A) zero net cash flow
B) $6800 of positive cash flow
C) $6800 negative cash flow
D) $15,000 negative cash flow
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Page 16
Chapter 15: Financial Statement Analysis
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Sample Questions
Q1) The financial statements of Carrier Office Furniture Company include the following items: \(\begin{array}{lrr} &2019&2018\\
\\
\text { Cash } & \$ 42,500 & \$ 42,000 \\
\text { Short-term Investments } & 28,000 & 19,000 \\
\text { Net Accounts Receivable } & 102,000 & 98,000 \\
\text { Merchandise Inventory } & 166,000 & 148,000 \\
\text { Total Assets } & 527,000 & 547,000 \\
\text { Total Current Liabilities } & 273,000 & 285,000 \\
\text { Long-term Note Payable } & 64,000 & 60,000 \end{array}\) What is working capital for 2019?
A) $190,000
B) $65,500
C) $37,500
D) $100,500
Q2) A high current ratio indicates that current liabilities are greater than current assets. A)True
B)False
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Chapter 16: Introduction to Managerial Accounting
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Sample Questions
Q1) The three categories of period costs are direct materials, direct labor, and manufacturing overhead.
A)True
B)False
Q2) Merchandising companies, like service companies, do not use a Cost of Goods Sold account.
A)True
B)False
Q3) The United States Bureau of Labor Statistics predicts that the manufacturing sector will account for the majority of projected job growth from 2014-2024.
A)True
B)False
Q4) Financial reporting is typically much more detailed than managerial accounting. A)True
B)False
Q5) The cost of goods sold is added to net sales revenue to determine gross profit.
A)True
B)False
Q6) Define indirect cost.
Page 18
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Chapter 17: Job Order Costing
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Sample Questions
Q1) When raw materials are requisitioned for a job, the Raw Materials Inventory account is debited.
A)True
B)False
Q2) Island Promotional Services uses a job order system for costing and billing promotional services for dance and ballet performances. Island has four public relations specialists and office staff. At the beginning of the year, Island estimated the total cost of salaries and benefits for the public relations specialists at $684,000 and a total of 7200 billable hours for the year. The office and administrative costs were estimated at $432,000. The allocation base for office and administrative costs is billable hours. In June, Island signed a contract for a Russian ballet performance. It negotiated a price of $6400 for its services. When the job was complete, Island's records showed that it had logged 36.0 billable hours. What was the actual total cost of the job for Island?
A) $5580
B) $2160
C) $3420
D) $1260
Q3) Why would the manager of a service company need to use job order costing?
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Chapter 18: Process Costing
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Sample Questions
Q1) Martinez Products manufactures a line of desk chairs. Martinez's production operations are divided into two departments - Department 1 and Department 2. The company uses a process costing system. Martinez incurred the following costs during the year to produce 25,700 chairs: \[\begin{array} { | l | l | }
\hline \text { Department 1 } & \$ 863,500 \\
\hline \text { Department 2 } & \$ 287,000 \\
\hline
\end{array}\] If Martinez sells 22,600 chairs during the year, what will be the cost per chair produced? (Round your answer to two decimal places.)
A) $33.60
B) $38.21
C) $44.77
D) $50.91
Q2) Both job order costing and process costing track the product costs of direct materials, direct labor, and manufacturing overhead through three inventory accounts on the balance sheet.
A)True
B)False
Q3) How is a production cost report prepared using the FIFO method?
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Page 20
Chapter 19: Cost Management Systems: Activity-Based
Just-In-Time
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Q1) Drive Safe, Inc. a leading manufacturer of car spare parts, divided its manufacturing process into two Departments - Production and Packing. The estimated overhead costs for the Production and Packing departments amounted to $14,000,000 and $20,000,000, respectively. The company produces two types of parts - Part 1 and Part 2. The total estimated labor hours for the year were 40,000, and estimated machine hours were 35,000. The Production department is mechanized, whereas the Packing department is labor oriented. Calculate the amount of manufacturing overhead costs allocated to Part 1.
\[\begin{array} { | l | c | c | }
\hline & \text { Production } & \text { Packing } \\
\hline & \text { Machine hours } & \text { Labor hours } \\
\hline \text { Part 1 } & 10,000 & 30,000 \\
\hline \text { Part 2 } & \underline { 25,000 } & \underline { 10,000 } \\
\hline & \underline { 35,000 } & \underline { 40,000 } \\
\hline
\end{array}\]
Q2) Activity-based costing uses a common allocation base for all activities. A)True
B)False
Q3) What is the purpose of implementing a just-in-time inventory system?
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Chapter 20: Cost Volume Profit Analysis
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Q1) Which of the following appears as a line item in a contribution margin income statement?
A) Gross profit
B) Total cost of goods sold
C) Operating income
D) Total selling and administrative expenses
Q2) Fixed costs divided by the contribution margin ratio equals the breakeven point in sales dollars.
A)True
B)False
Q3) The high-low method requires the identification of the lowest and highest levels of total costs, not activity, over a period of time.
A)True
B)False
Q4) Managers' decisions may cause costs to behave differently than predicted by CVP analysis.
A)True
B)False
Q5) How is the contribution margin calculated?
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Chapter 21: Variable Costing
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Q1) When there is no beginning Finished Goods Inventory and all the goods that are produced are sold, the operating income ________.
A) will be higher under absorption costing than variable costing
B) will be lower under absorption costing than variable costing
C) will be higher than the gross profit under variable costing
D) will be the same for both absorption costing and variable costing
Q2) Morwenna, Inc. reports the following information for August: \[\begin{array} { | l | r |
}
\hline \text { Sales Revenue } & \$ 900,000 \\
\hline \text { Variable Cost of Goods Sold } & 120,000 \\
\hline \text { Fixed Cost of Goods Sold } & 60,000 \\
\hline \text { Variable Selling and Administrative Costs } & 150,000 \\
\hline \text { Fixed Selling and Administrative Costs } & 50,000 \\
\hline
\end{array}\] Calculate the operating income for August using absorption costing.
A) $520,000
B) $270,000
C) $1,100,000
D) $380,000
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Page 23
Chapter 22: Master Budgets
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Q1) Bulldog, Inc. has budgeted sales for the first quarter of the next year to be 40,000 units. The inventory on hand at the beginning of quarter is 10,000 units. The desired ending inventory is 1000 units. Calculate the budgeted production for the first quarter.
A) 1000 units
B) 31,000 units
C) 30,000 units
D) 41,000 units
Q2) A manufacturing company has prepared the operating budget and the cash budget and is now preparing the budgeted balance sheet. While doing so, the Cash balance can be taken from the ________.
A) operational budget
B) budgeted income statement
C) cash budget
D) sales budget
Q3) When preparing the cost of goods sold budget, ________.
A) ignore balances in Finished Goods Inventory
B) start by calculating the projected cost to produce each unit
C) ignore the inventory costing method
D) multiply units produced by the total projected cost per unit
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Page 24
Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) When recording direct materials purchased, what does an unfavorable direct materials cost variance represent? Will this variance have a debit or credit balance?
Q2) The management of Watchdog Security Systems has calculated the following variances: \[\begin{array} { | l | r | }
\hline \text { Direct materials cost variance } & \$ 9000 \mathrm { U } \\
\hline \text { Direct materials efficiency variance } & 37,000 \mathrm {~F} \\
\hline \text { Direct labor cost variance } & 15,500 \mathrm {~F} \\
\hline \text { Direct labor efficiency variance } & 12,000 \mathrm { U } \\
\hline \text { Total variable overhead variance } & 7500 \mathrm {~F} \\
\hline \text { Total fixed overhead variance } & 3000 \mathrm {~F} \\
\hline
\end{array}\] What is the total direct labor variance of the company?
A) $15,500 F
B) $10,500 F
C) $27,500 F
D) $3500 F
Q3) What does the variable overhead cost variance measure?
Q4) Define variance. What is the difference between a favorable and an unfavorable variance?
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Chapter 24: Responsibility Accounting and Performance Evaluation
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Q1) Companies in which owners or top executives make all of the planning, directing and controlling decisions are ________ companies.
A) centralized
B) decentralized
C) formalized
D) segmented
Q2) Which of the following statements is true of performance reporting?
A) Responsibility reports should focus on the person responsible for unfavorable variances, rather than information.
B) Managers should not be held accountable for uncontrollable variances.
C) Only unfavorable variances in the reports should be explained.
D) Every variance, regardless of magnitude, must be investigated by the managers.
Q3) Define market-based transfer price. When should market-based transfer pricing be used? Explain your answer.
Q4) In a decentralized company, segment managers may not fully understand the big picture when making decisions.
A)True
B)False
Page 26
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Chapter 25: Short-Term Business Decisions
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Q1) Boylan Company manufactures two products-toaster ovens and bread machines. The following data are available: \[\begin{array} { | l | r | r | }
\hline & \text { Toaster Ovens } & \text { Bread Machines } \\
\hline \text { Sales price } & \$ 70 & \$ 170 \\
\hline \text { Variable costs } & \$ 30 & \$ 70 \\
\hline
\end{array}\] Boylan can manufacture six toaster ovens per machine hour and four bread machines per machine hour. Boylan's production capacity is 1600 machine hours per month. Marketing limitations indicate that Boylan can sell a maximum of 6100 toasters and 4000 bread machines per month. Which product and how many units should the company produce in a month to maximize profits? (Round machine hour per unit to two decimal places and your final answer to the nearest whole dollar.)
A) 6400 bread machines
B) 3600 toaster ovens and 4000 bread machines
C) 6100 toaster ovens and 2333 bread machines
D) 9600 toaster ovens
Q2) Managers should only consider financial information when making a decision.
A)True
B)False
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Chapter 26: Capital Investment Decisions
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Q1) The last step in the capital budgeting process is control, which compares the actual results with the projected results. These comparisons are known as ________.
A) net cash inflows
B) post-audits
C) rankings
D) variance analysis
Q2) The accounting rate of return also is known as the average rate of return or annual rate of return.
A)True
B)False
Q3) Net present value is defined as the difference between the present value of the investment's net cash inflows and the investment's initial cost.
A)True
B)False
Q4) If the net cash inflows are unequal, how is the payback period (in years) of an investment calculated?
Q5) Under what circumstances is the investment with the shortest payback the best choice? How should managers use the payback method?
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Chapter 27: Understanding Accounting Information
Systems and their Components
Available Study Resources on Quizplus for this Chatper
164 Verified Questions
164 Flashcards
Source URL: https://quizplus.com/quiz/70087
Sample Questions
Q1) ________ refers to purchasing software and data storage from a third party.
A) Cloud computing
B) Resource planning
C) Networking
D) Entry-level software
Q2) Entries from the purchases journal are posted monthly to the accounts payable subsidiary ledger and daily to the general ledger.
A)True
B)False
Q3) An accounting information system is said to have good control characteristics, if it
A) works smoothly with the business's employees and organizational structure
B) safeguards a business's assets and reduces the likelihood of fraud and errors
C) provides information that will improve decision making and reduce uncertainty
D) accommodates changes in the business over time
Q4) Which of the following is true of a network?
A) It connects a computer's hardware to the software.
B) It does not link computers.
C) It is the same as software.
D) It allows different computers to share the same information.
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