Accounting for Decision Making
Exam Materials
Course Introduction
Accounting for Decision Making provides students with an understanding of how accounting information is used by managers to plan, control, and make effective business decisions. The course covers the fundamentals of both financial and managerial accounting, introducing concepts such as budgeting, cost analysis, performance evaluation, and financial statement interpretation. Emphasis is placed on analyzing and interpreting accounting data to support strategic choices in various business contexts, equipping students with essential skills for informed decision making in managerial roles.
Recommended Textbook
Intermediate Accounting Reporting and Analysis 1st Edition by James M. Wahlen
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Page 2
Chapter 1: The Demand for and Supply of Financial
Accounting Information
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Q1) The demand for accounting information arises from the informational needs of various stakeholders.
Required
List five internal stakeholders or external stakeholders.
Answer: *Internal Employees
Executives
*External
Customers
Suppliers
Banks
Creditors
Equity investors
Communities
Tax Authorities
Government
Pension Funds
Labor Unions
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Chapter 2: Financial Reporting: Its Conceptual Framework
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Q1) The primary purpose of financial reporting is to provide useful and relevant information to the internal stakeholder's of the company.
A)True
B)False
Answer: False
Q2) What sources of information used by external decision making are directly affected by existing FASB standards?
A) Accounting Policies
B) Management Discussion and Analysis
C) Economic Statistics
D) Letters to Stockholders
Answer: A
Q3) Using an allowance method of accounting to recognize uncollectible accounts receivable is an application of which accounting convention?
A) revenue recognition
B) historical cost
C) matching principle
D) period of time
Answer: C
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Page 4
Chapter 3: Review of a Companys Accounting System
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Sample Questions
Q1) The accounting equations is
A) Assets = Liabilities - Shareholders' Equity
B) Assets + Liabilities = Shareholders' Equity
C) Assets-Liabilities = Shareholders' Equity
D) Assets + Shareholders' Equity = Liabilities
Answer: C
Q2) Which of the following adjusting entries would be the most likely be reversed?
A) Depreciation Expense 500
Accumulated Depreciation 500
B) Salary Expense 1980
Salary Payable 1980
C) Insurance Expense 500
Prepaid Insurance 500
D) Unearned Subscriptions 2,000
Subscription Revenue 2,000
Answer: B
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Chapter 4: The Balance Sheet and the Statement of
Shareholders Equity
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Q1) The primary attribute of all assets is service
A) potential
B) production
C) capacity
D) contribution
Q2) Changes in the separate shareholders' equity accounts can be disclosed in all of the following ways, except a
A) financial statement
B) note to the financial statements
C) parenthetical remark
D) supporting schedule
Q3) With all of the turmoil in the financial markets in 2008, one of your friends has emailed you because she has been wondering about the financial disclosure requirements for the banks and brokerage firms affected by the market turbulence. Explain the general accounting requirements for financial instruments to your friend.
Q4) What is FASB's Statement of Financial Accounting Concepts No. 6 definition of investments by owners and distributions to owners?
Q5) How would a common classification of a balance sheet look?
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Chapter 5: The Income Statement and the Statement of Cash Flows
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Q1) An operating segment is a component of a company that does all of the following except
A) has financial information available
B) engages in business activities to earn revenues and incur expenses
C) is part of a publicly held company
D) has operating results that are regularly reviewed by the company's chief operating officer
Q2) Realization of revenue occurs when
A) the item is formally recorded and reported in the financial statements
B) noncash resources are converted into cash or rights to cash
C) the actual exchange of noncash resources into cash
D) when a transaction is both realized and realizable
Q3) Refer to Exhibit 5-2. Compute net profit margin for Peace, Love, and Joy Company.
A) 14.25%
B) 15.00%
C) 25.00%
D) 13.25%
Q4) What are the three expense recognition principles used to properly recognize expense either by matching revenues or matching periods?
Page 7
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Chapter 6: Cash and Receivables
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Q1) On September 1, 2013, Geco Co. sold $40,000 of goods and accepted a one-year, 12% note.
Required:
a.If no reversing entries were made after December 31, 2013, and adjusting entries were made, record the collection of the note on September 1, 2014.
b.Assume instead that a noninterest-bearing note for $44,800 for the same goods was issued. What balance sheet accounts and amounts should be disclosed on December 31, 2013?
Q2) A key element in internal control over cash receipts utilizes two people (dual control).
A)True
B)False
Q3) Which of the following is a key element of internal control over cash payments?
A) periodically reconciling the cash account balance on the company's books to the bank statement balance
B) making daily bank deposits
C) requiring that all petty cash vouchers be approved by two signatures
D) authorizing and verifying that all cash received is recorded daily
Q4) What two issues are related to the valuation of receivables?
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Chapter 7: Inventories: Cost Measurement and Flow
Assumptions
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Q1) Taylor Company changed its inventory cost flow assumption from FIFO to LIFO in a period of rising prices. What was the result of the change on ending inventory in the year of the change?
A) increased ending inventory
B) decreased ending inventory
C) no change in ending inventory
D) cannot be determined from the information given
Q2) Refer to Exhibit 7-1. Edwards uses a perpetual inventory system and the net price method.
A) $42,000
B) $76,000
C) $92,150
D) $95,000
Q3) Which of the following cannot be used as the current cost in dollar-value LIFO calculations?
A) the cost of the first acquisitions in a year
B) the cost of the last acquisitions in a year
C) the cost of the acquisitions in the middle of a year
D) the average cost of all acquisitions in a year
Q4) In a period of rising prices what are the differences between LIFO and FIFO?
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Chapter 8: Inventories: Special Valuation Issues
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Sample Questions
Q1) Major Company uses the lower of cost or market rule in valuing its inventory. The floor constraint for one item in the inventory is $58.20. The following is other information concerning this unit: \(\begin{array} { l l }
\$5.00 & \text { Transportation costs } \\ 12.70 & \text { Narmal profit margain } \\ 5.20 & \text { Packanging coste } \end{array}\)
The market value for this item is
A) $58.20
B) $70.90
C) $78.90
D) $81.10
Q2) The purpose of dollar-value LIFO retail method is to eliminate the effects of price changes during a period.
A)True B)False
Q3) Describe the lower of cost or market rule.
Q4) .....
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Chapter 9: Current Liabilities and Contingencies
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Q1) Which of the following statements is true?
A) If ability to refinance a currently maturing obligation is present, the obligation should be classified as noncurrent debt.
B) If no reasonable estimate can be made of the minimum amount expected to be available for future refinancing, the entire outstanding short-term obligation must be disclosed as a noncurrent obligation.
C) The FASB has concluded that obligations that are due on demand should be classified as a current liability, even though liquidation of the liability is not expected within the next year or operating cycle, whichever is longer.
D) If a refinancing is soon to be accomplished by issuing common stock, a currently maturing short-term obligation should be included in stockholders' equity on the current balance sheet.
Q2) Which of the following would not be an acceptable method of presenting current liabilities on the balance sheet?
A) alphabetically
B) in order of their average time to maturity
C) in order of their liquidation preference
D) in order of their amount (largest to smallest)
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Chapter 10: Property, Plant, and Equipment: Acquisition and
Subsequent
Investments
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Q1) Morris recently purchased a building and the tract of land on which it is located. Morris plans to raze the building immediately and to erect a new building on the site. The value of the original building should be
A) written off as an extraordinary loss in the year the building is razed
B) capitalized as part of the cost of the land
C) depreciated over the period from the date of acquisition to the date that the building is to be razed
D) capitalized as part of the cost of the new building
Q2) Coco Services exchanged an asset with a cost of $24,000 (now 40% depreciated) for a nonmonetary asset worth $12,000. Coco received $2,000 boot. In the entry to record this exchange, Coco should record
A) a $10,000 loss
B) a $400 gain
C) no gain or loss
D) a $400 loss
Q3) Why is it important to allocate a lump-sum purchase amount among the individual assets acquired?
Q4) What is the successful-efforts method of capitalization?
Q5) What is the full-cost method of capitalization?
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Chapter 11: Depreciation, Depletion, Impairment, and Disposal
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Q1) Mark Industries uses the straight-line depreciation method. One asset had been purchased for $11,000. Annual depreciation expense was $2,000 after considering residual value of $1,000. What was the approximate life of the asset?
A) 5.50 years
B) 5.00 years
C) 10.00 years
D) 11.00 years
Q2) Javlin Farms purchased three new tractors for $25,000 each. Javlin expects the tractors to have a useful life of 6 years and a residual value of $5,000. One of the tractors has not preformed as expected, therefore Javlin sold the tractor after 2 years for $18,000. Javlin sells the remaining tractors for $5,000 at the end of the 6 years. Javlin uses group depreciation on a a straight-line basis.
Required:
a.) Prepare the journal entry for the purchase.
b.) Prepare the journal entry for the first and second year's depreciation.
c.) Record the journal entry for the disposal of the tractor.
d.) Record the journal entry for the third years depreciation.
Q3) What disclosures are required by GAAP for depreciation?
Q4) ......
Page 13
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Chapter 12: Intangibles
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Q1) Which of the following research and development costs should always be capitalized?
A) costs of intangibles purchased from others
B) costs of materials, equipment, and intangibles with alternative future uses purchased from others
C) costs of equipment with an expected life greater than three years
D) costs of contract services purchased from others
Q2) Copyright cost is amortized over
A) its expected useful life
B) its expected useful life if that life is less than 20 years
C) its expected useful life if that life is less than 30 years
D) the life of the author plus 70 years
Q3) Identifiable intangible assets would include all of the following except A) patents
B) trademarks
C) goodwill
D) franchises
Q4) For intangible assets that are amortized what does a company need to disclose on its balance sheet regarding those assets?
Q5) List 3 activities that can be included in R&D.
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Chapter 13: Investments and Long-Term Receivables
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Q1) List 3 investments in debt securities and 3 investments in equity securities.
Q2) In order for a derivative to be considered a hedge it must be mostly effective in offsetting a substantial amount of risk exposure associated with changes in fair values or cash flows of the hedged item.
A)True
B)False
Q3) With the equity method, the investor recognizes its share of the earnings of the subsidiary when the
A) investor sells the investment
B) investee pays a cash dividend
C) investee declares a cash dividend
D) investee reports earnings on its income statement
Q4) What is a derivative financial instrument, provide two examples and list one concept involving derivative?
Q5) What factors determine significant influence over the financial and operating policies of the investee company?
Q6) What three steps are necessary to evaluate whether or not an investment is impaired?
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Chapter 14: Financing Liabilities: Bonds and Notes Payable
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Q1) Debenture Bonds are only issued to companies with an excellent credit rating.
A)True
B)False
Q2) .......
Q3) For which of the following types of bonds is interest expense recognized each year even though no interest is paid?
A) debenture bonds
B) zero-coupon bonds
C) serial bonds
D) mortgage bonds
Q4) Eatsy Corp. owes Hardy, Inc., $30,000 on a note payable, plus $1,800 interest. Hardy agrees to accept 400 shares of Eatsy common stock in full settlement of the debt. Eatsy stock has a par value of $10 and a current market value of $70 per share. As a result of the debt restructuring, Eatsy Corp. should record an
A) ordinary loss of $1,800
B) extraordinary gain of $1,800
C) ordinary gain of $3,800
D) extraordinary gain of $3,800
Q5) What dilemma do serial bonds cause for accountants?
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Chapter 15: Contributed Capital
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Sample Questions
Q1) What variables must be considered when a corporation uses the option pricing model?
Q2) Refer to Exhibit 15-2. Lawrence received final payment (80%) on 1,800 shares and issued those shares. Subscribers defaulted on 200 shares. The entries to record receipt of final payment and issuance of 1,800 shares would include a
A) debit to Cash for $24,000
B) credit to Subscriptions Receivable: Common Stock for $24,000
C) debit to Common Stock Subscribed for $10,000
D) credit to Common Stock for $9,000
Q3) When a company acquires treasury stock, what effect does this transaction have on earnings per share and legal capital, respectively?
A) decrease, increase
B) increase, decrease
C) decrease, decrease
D) increase, none
Q4) List four transactions that comprise a corporation's contributed capital.
Q5) What are share based compensation plans?
Q6) What is a stock subscription?
Q7) Why would a corporation want to repurchase their own stock?
Page 17
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Chapter 16: Retained Earnings and Earnings Per Share
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Q1) When calculating earnings per share, dividends declared on noncumulative preferred stock, but not paid, should be
A) added to net income in the earnings per share numerator
B) accrued in the earnings per share numerator when paid
C) deducted from net income in the earnings per share numerator
D) deferred from the earnings per share numerator until paid
Q2) Under the if-converted method, the impact of various convertible securities on the diluted earnings per share calculation are ranked from
A) the least dilutive impact to the most dilutivet impact
B) the most dilutive impact to the least dilutive impact
C) the least number of assumed shares issued to the most
D) the most number of assumed shares issued to the least
Q3) ......
Q4) List 4 factors that management may consider prior to declaring a dividend.
Q5) What is a restriction of retained earnings and why would it be necessary?
Q6) The denominator in the calculation for basic earnings per share is net income less preferred dividends.
A)True
B)False
Page 18
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Chapter 17: Advanced Issues in Revenue Recognition
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Q1) Refer to Exhibit 17-4. How much gross profit did Fort Myers Company report in 2014?
A) $ 800
B) $2,000
C) $3,200
D) $4,000
Q2) If collectibility is reasonably certain or there is a reliable basis for estimating collectibility then the cost recovery method is appropriate.
A)True
B)False
Q3) A Provision for Loss on Contract is reported in the financial statements as a(n)
A) contra-asset account
B) asset account
C) liability account
D) contra-liability account
Q4) At what point would using the cost recovery method over the installment method be appropriate?
Q5) What three methods recognize revenue at the point the earnings process is completed?
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Chapter 18: Accounting for Income Taxes
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Q1) Which of the following is not a timing difference that would cause pretax financial accounting income to differ from taxable income?
A) Investment revenue is recognized under the equity method for financial reporting purposes but in a later period as dividends are received for income tax purposes.
B) Life insurance proceeds are received by a corporation upon the death of an insured employee of the corporation.
C) Rent received in advance is taxable when received but is not reported as revenue for financial reporting purposes until the service has actually been provided.
D) MACRS depreciation is used for income tax purposes, and straight-line depreciation is used for financial reporting purposes.
Q2) When Congress changes the tax laws or rates, a corporation's deferred tax liability and asset accounts
A) are not adjusted
B) are adjusted as of the end of the year in which the change occurred
C) are adjusted as of the beginning of the year in which the change occurred
D) are adjusted using the average of the old and new tax rates
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Chapter 19: Accounting for Postretirement Benefits
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Q1) Mark, Inc. amended its defined benefit pension plan as of January 1, 2014. Mark received a report from its actuary stating that at the beginning of 2014 unrecognized prior service cost resulting from the amendment amounted to $144,000. The company's work force was composed of twelve people. Four were expected to retire at the end of 2016. Two were expected to retire at the end of 2018, two more at the end of 2020, and four at the end of 2022.
Required:
Using the years-of-future-service method, compute the amount of prior service cost to be amortized in the first year.
Q2) Refer to Exhibit 19-02. What is the pension expense for 2014?
A) $105,000
B) $229,530
C) $315,000
D) $354,060
Q3) ERISA (Pension Reform Act of 1974) provides guidance for
A) accumulated benefit obligation
B) actual return on plan assets
C) minimum funding during the year
D) projected benefit obligations
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Chapter 20: Accounting for Leases
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Q1) Which of the following indicators relating to lease capitalization is an example of IFRS criteria being more principles-based than GAAP with respect to lease accounting?
A) The title must transfer to the lessee at the end of the lease term.
B) The present value of the payments must be at least 90% of the fair value of the asset.
C) The lease term must be a major part of the economic life of the asset.
D) The lease agreement must contain a bargain purchase option.
Q2) What four conditions can a lease be cancelable?
Q3) Refer to Exhibit 20-5. If Baltimore requires a 7% annual return, the lease should be classified as a(n)
A) operating lease
B) direct financing lease
C) sales-type lease
D) leveraged lease
Q4) An advantage of an operating lease is that is does not add a liability or an asset to the lessee's balance sheet, thereby not affecting certain liquidity and financial leverage ratio's.
A)True
B)False
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Chapter 21: The Statement of Cash Flows
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Q1) Refer to Exhibit 21-2. The Cash Flows from Operating Activities section prepared using the indirect method would include which of the following deductions or add-back amounts related to patents?
A) $(310)
B) $(290)
C) $ 290
D) $ 600
Q2) Which of the following events would be classified as an investing activity on a statement of cash flows?
A) payment of interest on a loan
B) receipt of cash dividends on an available-for-sale investment
C) issuance of common stock
D) sale of an office building at a gain
Q3) Refer to Exhibit 21-3. Net cash provided (used) in the operating activities section of Travis's 2015 statement of cash flows was
A) $(40,000)
B) $ 50,000
C) $ 52,000
D) $ 56,000
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Chapter 22: Accounting for Changes and Errors
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Q1) When making a retrospective adjustment, all of the following steps are included except
A) computing the cumulative effect of the new accounting principle as of the beginning of the first period presented
B) adjusting the current period net income for the cumulative effect of the change
C) adjusting the carrying value of impacted assets and liabilities
D) disclose the nature and reason for the change in accounting principle, including the new principle is preferable
Q2) Sometimes a change in estimate and a change in accounting principle are undistinguishable therefore a company should account for the change as a change in accounting principle.
A)True
B)False
Q3) Change in an accounting principle is accounted for A) prospectively
B) by a prior period adjustment
C) by a retrospective application of a new accounting principle
D) by constructive application of a new accounting principle
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Chapter 23: Time Value of Money Module
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Q1) The present value of $500,000 received at the end of five years discounted at 10% is
A) $805,255
B) $310,461
C) $306,957
D) none of these
Q2) Aunt Darla has agreed to deposit a lump sum into an account that pays 12% interest compounded annually in order to pay for her niece's college education. The niece estimated that she will need to withdraw $40,000 at the beginning of each year for four years to pay for room, board, tuition, and books. Aunt Darla will deposit the lump sum on August 1, 2014, and the niece will make the first withdrawal on August 1, 2020. Required:
Determine the amount that Aunt Darla must deposit. Clearly label all work.
Q3) Beginning December 31, 2014, ten equal, annual withdrawals are to be made. Required:
Using the appropriate tables, determine the equal, annual withdrawals if $140,000 is invested on January 1, 2014 at an interest rate of 10% compounded annually.
Q4) What estimations are involved in present value measurements?
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