Accounting for Decision Making Exam Questions
Course Introduction
Accounting for Decision Making explores the fundamental concepts and techniques of accounting that support effective business decision making. The course focuses on analyzing and interpreting financial statements, understanding cost behavior, budgeting, and using accounting data to inform managerial strategies. Students learn to apply accounting information in planning, controlling, and evaluating business operations, equipping them with the skills to make informed economic and financial decisions in a variety of organizational settings.
Recommended Textbook
Horngren's Accounting 12th Edition by Tracie L. Miller Nobles
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Chapter 1: Accounting and the Business Environment
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Sample Questions
Q1) GAAP refers to guidelines for accounting information in the United States.The acronym GAAP in this statement refers to ________.
A) Globally Accepted Accounting Policies
B) Government Approved Accounting Principles
C) Generally Accredited Accounting Policies
D) Generally Accepted Accounting Principles
Answer: D
Q2) The Public Company Accounting Oversight Board (PCAOB)was created ________.
A) by the Sarbanes-Oxley Act (SOX)
B) to perform audits of public companies
C) to make restitution to investors who were defrauded by the issuance of fraudulent financial reports
D) to require auditors to take responsibility for the accuracy and completeness of financial reports from firms they audit
Answer: A
Q3) Equity decreases with expenses and revenues.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Recording Business Transactions
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Sample Questions
Q1) The proportion of assets that are financed with debt can be calculated using the ________ ratio.
A) quick
B) debt
C) asset
D) cash
Answer: B
Q2) Which of the following accounts increases with a debit?
A) Prepaid Rent
B) Interest Payable
C) Accounts Payable
D) Owner, Capital
Answer: A
Q3) The debt ratio is one indication of the ability of a company to fulfill its obligation to repay liabilities.
A)True
B)False
Answer: True
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) Mercury Company sells tickets in advance for its weekly productions and records the proceeds as Unearned Revenue.At the end of each month,the company makes an adjusting entry to account for the tickets used during the month (ticket revenue.)On March 1,the Unearned Revenue account had a credit balance of $5,000.During March,Mercury sold 500 tickets at $40 each,and 450 tickets were used during the month.What is the balance in Unearned Revenue at the end of March?
A) credit balance of $7,000
B) debit balance of $5,000
C) credit balance of $5,000
D) debit balance of $7,000
Answer: A
Q2) Williams Enterprises prepaid three months of office rent totaling $8,700 on October 1,2019.Assuming Williams records deferred expenses using the alternative treatment,what would be the entry on October 1,2019?
A) Debit Prepaid Rent and credit Cash for $8,700
B) No entry is needed until the expense is incurred
C) Debit Cash and credit Unearned Rent for $8,700
D) Debit Rent Expense and credit Cash for $8,700
Answer: D
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) After closing entries have been posted,________.
A) the ending balance of Moses, Capital has been properly updated.
B) only permanent accounts carry balances.
C) Moses, Withdrawals has been closed into Moses, Capital
D) All of the above statements are correct.
Q2) The post-closing trial balance shows the net income for the period just ended.
A)True
B)False
Q3) The Depreciation Expense account is a temporary account.
A)True
B)False
Q4) A classified balance sheet can be presented in either a report or an account form.Although either is acceptable,the report form is more popular.
A)True
B)False
Q5) A business starts each new time period with a zero beginning balance in permanent accounts.
A)True
B)False
Q6) Why are temporary accounts not included in the post-closing trial balance?
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Chapter 5: Merchandising Operations
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Q1) A company that uses the perpetual inventory system purchases inventory for $64,000 on account,with terms of 2/10,n/30.Which of the following is the journal entry to record the payment made within 10 days?
A) a debit to Accounts Payable for $64,000, a credit to Cash for $1,280, and a credit to Merchandise Inventory for $62,720
B) a debit to Accounts Payable for $64,000, a credit to Merchandise Inventory for $1,280, and a credit to Cash for $62,720
C) a debit to Merchandise Inventory for $1,280, a debit to Accounts Payable for $64,000, and a credit to Cash for $65,280
D) a debit to Accounts Payable for $62,720, a debit to Merchandise Inventory for $1,280, and a credit to Cash for $64,000
Q2) On the income statement,a merchandising company reports the cost of merchandise inventory that has been sold to customers. A)True B)False
Q3) List four items from an invoice that are needed to record a purchase of merchandise inventory.
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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 sales revenue.
A)True
B)False
Q2) An overstatement of ending merchandise inventory in the current period results in an understatement of cost of goods sold in the current period.
A)True B)False
Q3) Companies determine the number of units on hand from perpetual inventory records backed up by a physical count.
A)True
B)False
Q4) In computing the lower-of-cost-or-market,market value generally means the selling price.
A)True B)False
Q5) What does inventory turnover measure? What does a low rate of inventory turnover indicate?
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Chapter 7: Accounting Information Systems
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Sample Questions
Q1) If there is no cash involved in a business transaction,the transaction should be recorded in ________.
A) either the cash receipts journal or general journal
B) either the sales journal or purchases journal
C) the general journal only
D) sales journal, purchases journal, or general journal
Q2) Which of the following is a benefit of using a computerized accounting information system?
A) The software can accurately measure the intrinsic value of the firm using the built-in simulation techniques.
B) There is no need to review the financial statements for accuracy.
C) The software is easy to use and thus no training or financial statement review is necessary.
D) The software automatically transfers the amounts from the general ledger to the financial statements.
Q3) List and describe two features of an effective accounting information system.
Q4) List and briefly discuss the two basic components of a computerized accounting information system.
Q5) Describe the transactions recorded in the cash payments journal.
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Chapter 8: Internal Control and Cash
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Sample Questions
Q1) Which of the following is included in the internal control procedure-documents?
A) Mandatory vacations will improve internal control.
B) Separate the custody of assets from accounting.
C) The invoices and orders must be pre-numbered.
D) A company should purchase a fireproof vault to protect legal documents.
Q2) Separating the custody of assets from accounting implies that the accountants must not handle cash and the cashier must not have access to the accounting records.
A)True
B)False
Q3) The bank made an EFT payment of a telephone bill of $5,000.How would this information be included on the bank reconciliation?
A) an addition on the bank side
B) a deduction on the book side
C) an addition on the book side
D) a deduction on the bank side
Q4) The bank statement reports the activity in the customer's account and is issued on an annual basis.
A)True
B)False
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Chapter 9: Receivables
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Sample Questions
Q1) The employees who handle cash know how customers pay and thus are in the best position to grant credit to customers.
A)True B)False
Q2) Both Smith Enterprises and Jones Enterprises have credit terms of 2/10,net 30.The days' sales in receivables are 40 for Smith Enterprises and 35 for Jones Enterprises.Analyze this information.
Q3) In order to keep accurate records about the collection of cash for a previously written off account,a business should re-establish the Accounts Receivable by debiting the receivable account.
A)True B)False
Q4) When a business pledges its accounts receivable,it transfers the right to collect cash from customers to the bank.
A)True B)False
Q5) Bad debt expense is a cost to the seller of extending credit. A)True B)False
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Chapter 10: Plant Assets,natural Resources,and Intangibles
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Sample Questions
Q1) Great Plains Company has acquired a property that included both land and a building for $500,000.The company paid cash.The company hired an appraiser who has determined that the market value of the land is $300,000 and that of the building is $400,000.Journalize the lump-sum purchase.Omit explanation.(Round any intermediate calculations to two decimal places,and your final answer to the nearest dollar.)
Q2) Regardless of the type of plant asset disposal,the first step is to bring the depreciation up to date.
A)True
B)False
Q3) A machine that was purchased for $110,000 has accumulated depreciation of $70,000.The business exchanges the machine for a new one.The new machine has a market value of $140,000,and the business pays $110,000 cash.Assume the exchange has commercial substance.This exchange results in a ________.
A) gain of $10,000
B) gain of $5000
C) loss of $10,000
D) loss of $40,000
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Page 12
Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) The current period earnings column of the payroll register only includes regular and overtime earnings.
A)True
B)False
Q2) Which of the following is included in the entry to record accrual of warranty expense?
A) a debit to Warranty Expense
B) a credit to Merchandise Inventory
C) a credit to Warranty Expense
D) a debit to Estimated Warranty Payable
Q3) Ron is an employee of Panache,Inc.Panache pays a portion of his health insurance premium and also contributes to a retirement plan in his name.The company's share of the health insurance premium is $600,and the company's contribution to the retirement plan is $860.The journal entry to record the employee benefits to be paid by the company should include a debit to Employee Health Insurance Payable for $1,460.
A)True
B)False
Q4) If the likelihood of a future event is reasonably possible,how should the company report the contingency?
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Chapter 12: Partnerships
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Sample Questions
Q1) Edwin and Darren have decided to form a partnership.Edwin contributes $80,000 cash and merchandise inventory with a current market value of $17,000.Darren contributes $2400 cash and office furniture with a current market value of $3200.When journalizing these transactions ________.
A) Office Furniture will be debited for $1070
B) Office Furniture will be credited for $3200
C) Office Furniture will be debited for $3200
D) Office Furniture will be credited for $1070
Q2) While liquidating a partnership,the cash remaining after paying all liabilities is paid to the partners based on their profit-and-loss-sharing agreement.
A)True
B)False
Q3) A(n)________ does NOT require any permission from the state to be set up. A) LLC
B) partnership
C) S Corporation
D) C Corporation
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Chapter 13: Corporations
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Sample Questions
Q1) The declaration date is the date the corporation prepares a journal entry to record that stockholders will receive dividend checks.
A)True
B)False
Q2) The following information is from the December 31,2018 balance sheet of January Corporation. \[\begin{array} { | l | r | }
\hline \text { Preferred Stock, } \$ 100 \text { par } & \$ 270,000 \\
\hline \text { Paid-In Capital in Excess of Par-Preferred } & 22,000 \\
\hline \text { Common Stock, } \$ 1 \text { par } & 69,000 \\
\hline \text { Paid-In Capital in Excess of Par-Common } & 206,000 \\
\hline \text { Retained Earnings } & \underline { 56,600 } \\
\hline \text { Total Stockholders' Equity } & \$ 623,600 \\
\hline
\end{array}\] What is the average issue price of the preferred stock shares? (Round answers to the nearest dollar.)
A) $108
B) $100
C) $167
D) $106
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Chapter 14: Long-Term Liabilities
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Sample Questions
Q1) Earning more income on borrowed money than the related interest expense is called ________.
A) operating leverage
B) financial leverage
C) annuity
D) amortization
Q2) On January 1,2018,Denver Services issued $20,000 of 8% bonds that mature in five years.The bonds were issued for $19,000.Prepare the journal entry to issue bonds.Omit explanation.
Q3) On December 1,2018,Modern Dining Products borrowed $84,000 on a 12%,5-year note with annual installment payments of $16,800 plus interest due on December 1 of each succeeding year.On December 1,the principal amount was recorded as a long-term note payable.What amount of the note payable will be shown as current portion of Long-Term Note Payable on the balance sheet as of December 31,2018? (Round your answer to nearest whole number.)
A) $16,800
B) $26,880
C) $10,080
D) $33,600
Q4) What is the difference between simple interest and compound interest?
Page 16
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Chapter 15: Investments
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Sample Questions
Q1) Under the equity method,dividend revenue is treated as ________.
A) a debit to revenue from investments
B) dividend revenue
C) a return of capital
D) a credit to current assets
Q2) ________ are equity securities in which the investor owns between 20% and 50% of the investee's voting stock.
A) Held-to-maturity investments
B) Significant influence investments
C) Controlling interest investments
D) Available-for-sale investments
Q3) When a trading debt security is disposed of,the amount of gain or loss is calculated as the difference between the cash received and the cost of the debt security disposed of.
A)True
B)False
Q4) Provide definitions for the following types of investments.
a.Controlling interest equity investment
b.Available-for-sale debt investment
c.No significant influence equity investment
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Chapter 16: The Statement of Cash Flows
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Q1) The operating and financing activities of the statement of cash flows are presented differently between the indirect and direct methods.
A)True
B)False
Q2) Tri-City Installations Company uses the direct method to prepare its statement of cash flows.Tri-City has reported sales revenues of $200,000 on its income statement for 2018.If the balance in Accounts Receivable has increased by $10,000 during the year,then $10,000 needs to be added to $200,000 to calculate collections from customers.
A)True
B)False
Q3) Selling property,plant,and equipment for $10,000 cash is considered a cash inflow from investing activities on the statement of cash flows.
A)True
B)False
Q4) The third section presented on the statement of cash flows is the non-cash operating activities section.
A)True
B)False
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Chapter 17: Financial Statement Analysis
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Sample Questions
Q1) What is an annual report? Briefly describe the key parts of the annual report.
Q2) Which of the following statements is TRUE for financial leverage?
A) The asset turnover ratio measures financial leverage.
B) Financial leverage always increases profitability.
C) Financial leverage is measured in the proportion of total assets relative to total equity.
D) The higher the debt to equity ratio, the higher the financial leverage.
Q3) Elephant,Inc.'s cost of goods sold for the year is $1,900,000,and the average merchandise inventory for the year is $132,000.Calculate the inventory turnover ratio of the company.(Round your answer to two decimal places.)
A) 6.95 times
B) 14.39 times
C) 7.20 times
D) 9.31 times
Q4) In 2018,Spirit Company's net income was 10% of net sales revenue.In 2019,the net income was 5% of net sales revenue.There is no need for investors to be alarmed because a drop from 10% to 5% is not significant.
A)True
B)False
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Chapter 18: Introduction to Managerial Accounting
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Q1) The salary of a manufacturing plant manager will be included in manufacturing overhead.
A)True
B)False
Q2) If a merchandising company determines that the unit cost to purchase a product is less than the unit cost to manufacture the product,the company should make a decision to begin manufacturing the product
A)True
B)False
Q3) Which of the following statements is TRUE of financial accounting?
A) It provides information to investors needed for their investment decisions.
B) It provides future focused information needed for managing and delegating operations.
C) It focuses on detailed reports for parts of the company rather than the whole company.
D) It focuses on planning, directing and controlling day-to-day operations.
Q4) For external reporting purposes,GAAP requires companies to treat period costs as assets.
A)True
B)False
Page 20
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Chapter 19: Job Order Costing
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Sample Questions
Q1) In a job order costing system,a credit to Finished Goods Inventory will be accompanied by a debit to ________.
A) Cost of Goods Sold
B) Work-in-Process Inventory
C) Sales Revenue
D) Accounts Receivable
Q2) The predetermined overhead allocation rate is the rate used to ________.
A) assign direct material costs to jobs
B) allocate actual manufacturing overhead costs incurred during a period
C) allocate estimated manufacturing overhead costs to jobs
D) trace manufacturing and nonmanufacturing costs to jobs
Q3) The flow of costs in a job order costing system ________.
A) cannot be determined until all jobs are complete
B) transfers all costs to manufacturing overhead
C) involves accumulating costs and then assigning costs to jobs
D) includes the major steps of accumulating and amortizing
Q4) Both job order and process costing systems use a four-step method to track product costs.List each of the four steps.
Q5) Why would the manager of a service company need to use job order costing?
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Chapter 20: Process Costing
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Q1) The direct labor costs and manufacturing overhead costs required to produce finished goods from raw materials are called ________.
A) transferred in costs
B) cost of sales
C) finished goods costs
D) conversion costs
Q2) A textile manufacturing company is most likely to use job order costing to arrive at the cost per yard of textile manufactured and sold to customers.
A)True
B)False
Q3) Which of the following is a step in the preparation of a production cost report?
A) assignment of costs to units completed and units in process
B) summarization of the flow of physical units to the suppliers
C) computation of expected units of production
D) computation of amount of materials required for production
Q4) The Raw Materials Inventory account is debited when direct materials are issued for production.Process costing is used.
A)True
B)False
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Chapter 21: Cost-Volume-Profit Analysis
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Q1) For every unit that is produced but not sold,absorption costing "hides" some of the fixed manufacturing overhead in ending Finished Goods Inventory.
A)True
B)False
Q2) Artisan Works is owned and operated by a craftsman who makes replicas of historic firearms for museums,sportsmen,and collectors.The data are as follows: \[\begin{array}
{ | l | r | }
\hline \text { Sales price per unit } & \$ 780 \\
\hline \text { Variable cost per unit } & 470 \\
\hline \text { Fixed costs per month } & 8370 \\
\hline
\end{array}\] If Artisan expects to sell 60 units per month,what is his margin of safety expressed in units per month?
A) 33 units
B) 60 units
C) 87 units
D) 31 units
Q3) How is the contribution margin ratio calculated?
Q4) List the cost-volume-profit (CVP)assumptions.
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Chapter 22: Master Budgets
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Sample Questions
Q1) The cost accountant works with the office and sales managers to develop the selling and administrative expense budget.
A)True
B)False
Q2) When preparing the selling and administrative expense budget,there is no need for a merchandising company to separate mixed costs into the fixed and variable components.
A)True
B)False
Q3) Bulldog,Inc.has budgeted sales for the first quarter of the next year to be 45,000 units.The inventory on hand at the beginning of quarter is 5000 units.The desired ending inventory is 3000 units.Calculate the budgeted production for the first quarter.
A) 3000 units
B) 43,000 units
C) 40,000 units
D) 48,000 units
Q4) What is a common method of accessing short-term financing?
Q5) Define sensitivity analysis.Why do managers conduct sensitivity analysis during the budget process?
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) When using management by exception,the purchasing manager should be questioned for which of the following variances?
A) direct materials efficiency
B) variable overhead efficiency
C) direct materials cost
D) direct labor efficiency
Q2) A direct labor cost variance is unfavorable if the employer pays workers more per hour than budgeted.
A)True
B)False
Q3) The total product cost flexible budget variance is obtained by adding direct labor efficiency variance and fixed overhead volume variance.
A)True
B)False
Q4) List three ways in which using a standard cost system helps managers.
Q5) Unfavorable variances are subtracted from each other to arrive at a favorable variance.
A)True
B)False
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Chapter 24: Cost Allocation and Responsibility Accounting
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Q1) Which of the following is the last step in developing an activity-based costing system?
A) estimating the total quantity of the cost driver
B) estimating the total indirect costs of each activity
C) identifying the activities
D) allocating indirect costs to the cost object
Q2) State the strategy for each of the perspectives of the balanced scorecard.
\[\begin{array} { | l | l | }
\hline \begin{array} { c }
\text { Balanced scorecard } \\
\text { perspective }
\end{array} & \text { Strategy } \\
\hline \text { Financial } & \\
\hline \text { Customer } & \\
\hline \text { Internal business } & \\
\hline \text { Learning and growth } & \\
\hline
\end{array}\]
Q3) Discuss the difference between a centralized company and a decentralized company.
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Chapter 25: Short-Term Business Decisions
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Q1) Momentum Rollerblades has three product lines-D,E,and F.The following information is available: \(\begin{array}{|l|l|l|l|}
\hline& \text { D } & \text { E } & \text { F } \\
\hline \text { Sales revenue } & \$ 80,000 & \$ 60,000 & \$ 31,000 \\
\hline \text { Variable costs } & (30,000 )& (15,000 )& (12,000) \\
\hline \text { Contribution margin } & \$ 50,000 & \$ 45,000 & \$ 19,000 \\
\hline \text { Fixed costs } & (10,000) & (5000) & (23,000) \\
\hline \text { Operating income (loss) } & \$ 40,000 & \$ 40,000 & \$(4000) \\ \hline \end{array}\)
The company is deciding whether to drop product line F because it has an operating loss.Assume that $22,000 of total fixed costs could be eliminated by dropping F.What effect would this decision have on operating income?
A) Operating income will increase by $23,000.
B) Operating income will increase by $3000.
C) Operating income will decrease by $23,000.
D) Operating income will decrease by $3000.
Q2) List three questions managers should consider when deciding whether to drop a product or a business segment.
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Chapter 26: Capital Investment Decisions
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Q1) Cash flows used in net present value and internal rate of return analyses ignore ________.
A) future increased sales
B) future cost savings
C) depreciation expense
D) residual value
Q2) A major criticism of the payback method is that it focuses only on the time to recover the investment and ignores profitability.
A)True
B)False
Q3) If the net cash inflows are unequal,how is the payback period (in years)of an investment calculated?
Q4) Many service,merchandising,and manufacturing firms use discounted cash flow methods to make capital investment decisions.
A)True B)False
Q5) The accounting rate of return method considers the time value of money. A)True B)False
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