Accounting for Decision Making Exam Bank
Course Introduction
Accounting for Decision Making explores the principles and techniques of accounting that support effective managerial decision-making in both small and large organizations. The course covers topics such as cost behavior and analysis, budgeting, performance evaluation, and the use of financial and non-financial information in planning and control. Students will learn to interpret accounting data, assess financial implications, and apply quantitative and qualitative methods to solve real-world business problems. Emphasis is placed on developing critical thinking skills and using accounting information strategically to make informed operational and financial decisions.
Recommended Textbook
Financial Accounting An Introduction to Concepts Methods and Uses 14th Edition by Roman L. Weil
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Page 2
Chapter 1: Introduction to Business Activities and Overview
of Financial Statements and the Reporting Process
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Q1) _____ items are depicted in words and numbers on the face of the financial statements, with amounts included in the totals.
A)Recognized
B)Realized
C)Actualized
D)Objective
E)Relevant
Answer: A
Q2) In 2007 the U.S.SEC adopted new rules that permit _____ that list and trade their securities in the United States to apply IFRS in their financial reports filed with the SEC without any reconciliation to U.S.GAAP.
A)U.S.SEC registrants
B)non-U.S.SEC registrants
C)EU SEC registrants
D)Chinese SEC registrants
E)all of the above
Answer: B
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3
Chapter 2: The Basics of Record Keeping and Financial
Statement Preparation: Balance Sheet
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Q1) What does the word "marketable" imply as far as "marketable securities"?
A)It implies that the securities should be classified as a temporary account.
B)It implies that a firm owes money on the securities.
C)It implies that the securities are considered to be goodwill.
D)It implies that the firm can readily buy and sell the securities on an exchange.
E)It implies that the firm has signed a formal written contract called an indenture.
Answer: D
Q2) The asset and liability categories group individual accounts by the expected timing of cash receipts (for assets) or cash payments (for liabilities).
A)True
B)False Answer: True
Q3) In computerized systems, posting occurs instantly and automatically after journalizing.
A)True
B)False
Answer: True
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Page 4
Chapter 3: The Basics of Record Keeping and Financial
Statement Preparation: Income Statement
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Sample Questions
Q1) If Moore pays a $600 insurance premium for a one-year policy on January 31 for coverage from February 1 of Year1 through January 31 of Year 2, the journal entry to be made at the end of February Year 1 would include a debit to Insurance Expense for $600.
A)True
B)False
Answer: False
Q2) Prepaid assets are valued on the balance sheet at
A)cost paid to acquire the asset.
B)acquisition cost less accumulated depreciation.
C)cost less expired portion.
D)replacement cost.
E)present value of future cash flows.
Answer: C
Q3) The income statement typically provides information about the operating results of business segments.
A)True
B)False
Answer: False
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Chapter 4: Balance Sheet: Presenting and Analyzing
Resources and Financing
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Sample Questions
Q1) The stockholders' equity of a firm can be defined as A)net current assets
B)a residual interest
C)total assets plus total liabilities
D)the owners' claim to the assets and liabilities
E)None of these answer choices is correct.
Q2) A potential investor can easily ascertain market value of common equity for a given publicly traded firm by looking up the most recent share price (as reported in various online services) and then multiplying this share price times the number of common shares outstanding, as reported on the balance sheet.
A)True
B)False
Q3) Applying asset and liability definitions and recognition criteria under U.S.GAAP and IFRS results in the balance sheet including all economic benefits (resources) and obligations.
A)True
B)False
Q4) Describe the following concepts: (1) going concern, (2) recognition and realization, and (3) relevance and reliability,
Page 6
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Chapter 5: Income Statement: Reporting Results of Operating Activities
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Q1) Firms have considerable flexibility as to how they report other comprehensive income each period.Under U.S.GAAP, they can include
A)it with net income in a single statement of comprehensive income.
B)it in a separate statement of other comprehensive income that is one of the notes to the financial statements.
C)it in a statement of changes in shareholders' equity.
D)all of the above.
E)none of the above.
Q2) Expenses provide future benefits, and assets measure the consumption of those benefits.
A)True
B)False
Q3) Both U.S.GAAP and IFRS require the disclosure, in the notes to the financial statements, of selected information about business segments.
A)True
B)False
Q4) How are period expenses recognized and measured?
Q5) What are the criteria for revenue recognition?
Q6) What is comprehensive income?
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Chapter 6: Statement of Cash Flows
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Q1) Which of the following is the method of reporting amounts of cash received from customers less cash disbursed to various suppliers, employees, lenders for interest payments, and taxing authorities, allowed by U.S.GAAP?
A)the direct method
B)the indirect method
C)both the direct method and the indirect method
D)the schedule of cash receipts and cash disbursements
E)the funds flow statement
Q2) The _____ for preparing the Statement of Cash Flows begins with net income and adjusts that amount for noncash items.
A)indirect method
B)direct method
C)income method
D)bottom-up method
E)top-down method
Q3) Describe the various presentation formats for the Statement of Cash Flows.
Q4) How does the statement of cash flows helps readers understanding?
Q5) Why is a Statement of Cash Flows needed?
Q6) Describe the various sections of the statement of cash flows.
Page 8
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Chapter 7: Introduction to Financial Statement Analysis
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Q1) The typical first step in financial statement analysis and valuation (after selecting assumptions) is:
A)Understand the Purpose and Content of the Principal Financial Statements and Related Notes.
B)Identify the Industry Economic Characteristics and Firm's Strategy.
C)Calculate and Interpret Profitability and Risk Ratios.
D)Prepare Pro Forma, or Projected, Financial Statements.
E)Value the Firm.
Q2) Discuss how the rate of return on common shareholders' equity is calculated.
Q3) The rate at which _____ turn(s) over measures how quickly a firm collects cash.
A)accounts receivable
B)assets turnover
C)inventory
D)accounts payable
E)notes receivable
Q4) To study changes in ROA, the analyst can disaggregate ROA into the product of two other ratios: the profit margin for ROA ratio and the total assets turnover ratio.
A)True
B)False
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Chapter 8: Revenue Recognition, Receivables, and
Advances From Customers
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Q1) The method that recognizes losses from uncollectible accounts in the period when a firm decides that specific customers' accounts are uncollectible is called the
A)direct write-off method.
B)allowance method.
C)percentage of sales method.
D)bad debt determination method.
E)indirect write-off method.
Q2) The Accounts Receivable, Gross amount less the Allowance for Uncollectibles yields Accounts Receivable, Net, which reflects the amount of cash the firm expects to collect.
A)True
B)False
Q3) The write-off of specific customers' accounts has no effect on Accounts Receivable, Net, because the write-off amount decreases Accounts Receivable, Gross, and its contra account, the Allowance for Uncollectibles, by exactly the same amount.
A)True
B)False
Q4) Discuss how accounts receivable can be analyzed.
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Chapter 9: Working Capital
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Q1) Examples of restructuring activities include selling or closing divisions or plants, combining offices, moving operations from one location to another, terminating employees or leases, and selling assets.
A)True
B)False
Q2) Which of the following is not true regarding the lower-of-cost-or-market basis for inventory valuation?
A)It is a conservative accounting policy.
B)It recognizes losses from decreases in market value before a sale occurs.
C)It recognizes gains from increases in market value above original acquisition cost only when a sale occurs.
D)It reports inventories on the balance sheet at amounts that are never greater, but may be less, than acquisition cost.
E)It reports inventories on the balance sheet at amounts that are equal to the acquisition cost less a normal profit margin.
Q3) How are inventories valued subsequent to acquisition?
Q4) How do Merchandising and Manufacturing firms report product costs and changes in Inventory?
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11
Chapter 10: Long-Lived Tangible and Intangible Assets
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Q1) How are long-lived assets analyzed?
Q2) The financial statements and notes provide information for analyzing changes in property, plant, and equipment.What ratio(s) is/are used by analysts?
A)Fixed Asset Turnover
B)Proportion of Depreciable Assets
C)Average Age of Depreciable Assets
D)all of the above
E)none of the above
Q3) U.S.GAAP and IFRS require firms to treat expenditures for maintenance and repairs as expenses of the period as incurred but treat expenditures for improvements as assets (which firms subsequently depreciate or amortize).
A)True
B)False
Q4) How does disposal of an asset through sale, abandonment, or trade-in on another asset affect net income?
Q5) Discuss the concepts of depreciation and amortization.
Q6) What happens when the fair value of long-lived assets change?
Q7) Describe the depreciation and amortization methods used in accounting.
Q8) Describe several issues in the accounting for long-lived assets.
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Chapter 11: Notes, Bonds, and Leases
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Q1) How are notes valued and accounted for under the authoritative guidance?
Q2) When the coupon rate equals the historical market interest rate or initial yield to maturity, then the initial issue price equals the face value of the bonds.
A)True
B)False
Q3) The amount borrowed initially and the market value of a note or bond at any date subsequent to the initial borrowing equals the present value of the future, or remaining, cash flows discounted at an appropriate interest rate.
A)True
B)False
Q4) Discuss the fair value option in accounting for certain assets and liabilities.
Q5) A _____ bond requires periodic payments of interest plus a portion of the principal throughout the life of the bond.
A)convertible
B)callable
C)zero coupon
D)serial
E)debenture
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Chapter 12: Liabilities: Off-Balance Sheet Financing,
Benefits, and Income Taxes
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Q1) The temporary difference associated with accelerated depreciation for tax purposes and straight-line depreciation for financial reporting purposes means that a firm will pay _____ income taxes in the early years of the asset's life, but this temporary difference will reverse over the entire asset life, resulting in _____ taxes in later years.
A)higher; higher B)lower; higher C)higher; lower D)lower; lower E)average; average
Q2) Firms currently apply the fair value option to retirement plan obligations and report unamortized items in net income as they arise.
A)True
B)False
Q3) In a defined benefit plan, the employer is ultimately responsible for either contributing cash or obtaining a return on pension investments sufficient to pay promised amounts to retired employees.
A)True
B)False
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Chapter 13: Marketable Securities and Derivatives
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Q1) Management can sell securities with unrealized holding gains (or losses) and transfer through net income to Retained Earnings the entire unrealized holding gain (or loss)-that is, management can affect the timing of gain or loss recognition in net income for both securities available-for-sale and trading securities.
A)True
B)False
Q2) A firm initially records the purchase of marketable securities at acquisition cost, which includes the purchase price plus any commissions, taxes, and other appropriate costs incurred.
A)True
B)False
Q3) Which of the following is not a derivative?
A)forward foreign exchange contract
B)swap contract
C)forward commodity contract
D)a share of nonconvertible preferred stock
E)Eurodollar future
Q4) Discuss the accounting for debt securities held to maturity and arguments against this approach.
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Chapter 14: Intercorporate Investments in Common Stock
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Q1) A major mining company owns a mining subsidiary in South America, where the government enforces stringent control over cash payments outside the country.The parent cannot control all the assets of the subsidiary, despite owning a majority of the voting shares, but should prepare consolidated statements with the subsidiary.
A)True
B)False
Q2) Describe the U.S.GAAP requirement in accounting for joint venture investments.,
Q3) (CMA adapted, Dec 92 #9) In a business combination that is accounted for as a purchase and does not create negative goodwill, the assets of the acquired company are to be recorded on the books of the acquiring company at
A)original cost.
B)original cost less accumulated depreciation.
C)fair market value.
D)book value.
E)liquidation value.
Q4) Why would a firm choose to acquire less than 50 percent of an organization yet not desire to exercise significant influence within the organization?
Q5) Describe the limitations of consolidated statements.
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Chapter 15: Shareholders Equity: Capital Contributions and Distributions
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Q1) Which of the following is/are not true?
A)Convertible preferred shares give the holder of preferred shares the right to convert the preferred shares into a specified number of common shares under certain specified conditions.
B)Changes in the market price of convertible preferred shares will often parallel changes in the market price of common shares because of the conversion option.
C)Convertible preferred shares provide the security holders with the possibility of capital appreciation by converting the preferred shares into common shares if the market price of the common shares rises sufficiently.
D)The issuing firm benefits from issuing convertible preferred shares, because these shares carry a lower dividend rate than purchasers otherwise would have required to buy the shares for a given price.
E)none of the above
Q2) Describe common stockholder rights.
Q3) Only the corporate form of business organization provides the owner with limited liability.
A)True
B)False
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Chapter 16: Statement of Cash Flows: Another Look
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Q1) The statement of cash flows explains the reasons for the change in cash and cash equivalents during a period.This statement classifies the reasons as relating to
A)operating decisions, only.
B)investing decisions, only.
C)financing decisions, only.
D)operating, investing, or financing decisions.
E)operating, investing, financing, or exchange decisions.
Q2) The product life-cycle concept from microeconomics and marketing provides useful insights into the relations between cash flows from operating, investing, and financing activities.During the introduction phase
A)cash inflow exceeds cash outflow for operating activities.
B)cash inflow exceeds cash outflow for investing activities.
C)cash outflow exceeds cash inflow for financing activities
D)cash outflow exceeds cash inflow for investing activities.
E)cash inflow exceeds cash outflow for financing activities
Q3) Discuss the relations among cash flows from operating, investing, and financing activities for firms in the introduction, growth, mature, late maturity, and decline phases.
Q4) Discuss the indirect and direct methods in deriving cash flow from operations.
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Chapter 17: Synthesis and Extensions
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Q1) Explain how U.S.GAAP and IFRS distinguish the accounting for (1) corrections of errors, (2) adjustments for changes in accounting principles, and (3) adjustments for changes in accounting estimates.
Q2) A separate section of the income statement reporting information about discontinued operations is included
A)only if the sale resulted in a loss.
B)in every income statement prepared in accordance with the GAAP.
C)any time a major business asset is sold.
D)if a firm sells, during the period, or plans to sell, during the next period, a major division or segment of its business.
E)if a firm has sold during the previous period, or plans to sell during the next period, a major division or segment of its business.
Q3) Discuss recent changes in the financial reporting environment.
Q4) U.S.GAAP permits firms to remeasure property, plant, and equipment upward for increases in fair value under certain conditions.
A)True
B)False
Q5) Describe accrual and cash accounting.
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