Accounting for Decision Making Exam Solutions
Course Introduction
Accounting for Decision Making introduces students to the role of accounting information in business decision-making processes. The course covers fundamental concepts of financial and management accounting, emphasizing how managers use accounting data to plan, control, and evaluate business activities. Topics include financial statement analysis, budgeting, cost behavior, performance measurement, and strategic decision-making. Through case studies and practical examples, students will develop skills to interpret accounting information, assess financial health, and make informed managerial decisions within various organizational contexts.
Recommended Textbook
Introduction to Accounting An Integrated Approach 6th Edition by Penne Ainsworth
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Page 2
Chapter 1: Accounting and Business
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Sample Questions
Q1) Which of the following is not an objective of financial reporting specified in Concept Statement #1?
A)To provide information useful to investors and creditors
B)To provide information helpful in assessing the future amounts and timing of cash Flows.
C)To provide information about the assets and claims on the assets of a firm.
D)To prepare income statements on a timely basis.
Answer: D
Q2) All of the following are external stakeholders except:
A)employees
B)suppliers
C)customers
D)creditors
Answer: A
Q3) List and define the two primary qualities of useful accounting information.
Answer: Relevance and reliability. Relevant information makes a difference in a decision. Reliable information can be depended on.
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Chapter 2: Business Processes and Accounting Information
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Sample Questions
Q1) The balanced scorecard approach has four perspectives,which of the following is not one of those perspectives?
A)Financial Perspective
B)Learning and Growth Perspective
C)Internal Control Perspective
D)Customer Perspective
Answer: C
Q2) The profitability generated by the net assets (assets-liability)of a corporation would be best measured by the:
A)Quick Ratio
B)Return on Investment
C)Return on Owners' Equity
D)Gross Margin Ratio
Answer: C
Q3) Identify the ratio below that does not monitor non-value added time.
A)Quick Ratio
B)Inventory Turnover
C)Accounts Payable Turnover
D)Accounts Receivable Turnover
Answer: A
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Chapter 3: Operating Processes: Planning and Control
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Sample Questions
Q1) A cost that is constant per unit but varies in total is called a(n):
A)Activity cost
B)Variable cost
C)Fixed cost
D)Mixed cost
Answer: B
Q2) Explain why it is inappropriate to calculate the cost of an expected activity (using a cost formula generated by either the High/Low method or linear regression)that is outside the relevant range of activity.
Answer: The cost ratio created by either the High/Low method or Linear Regression is based on a specific range of activity.To forecast the cost of a level of activities that is above or below the range used to generate the cost formula is very speculative.Cost might change dramatically or maintain the prior relationship but there is no evidence to support the forecasted amounts and,therefore,the projected cost would not be reliable.
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Chapter 4: Short-Term Decision Making
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Sample Questions
Q1) The point where the total revenue line intersects the total cost line is called the:
A)origin
B)breakeven point
C)X axis intercept
D)Y axis intercept
Q2) Assume a person is considering starting a new business and calculates the expected breakeven point for the business.Using the results of the breakeven analysis,what should be the next step taken?
Q3) When analyzing the incremental costs used to help make a short-term operating decision:
A)fixed costs are irrelevant
B)variable costs are irrelevant
C)both fixed costs and variable costs are relevant
D)incremental revenues are irrelevant
Q4) You are seeing your mother off on a cruise when you hear the cruise director say that they have "several empty cabins".The cruise is costing your mother $849 but you offer the cruise line $250 for a ticket.Under what conditions should the cruise line accept your offer.
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Chapter 5: Strategic Planning Regarding Operating Processes
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Sample Questions
Q1) A reorder point in a Kanban system is identified by a:
A)A card
B)A color coded inventory item
C)A predetermined date
D)A pokemon
Q2) If a product has a cost of the $250 and a selling price of $450,what is the products markup percentage?
A)200%
B)80%
C)44.4%
D)Not enough information to calculate
Q3) Model bakers have developed a snack cake that it wants to compete with Hostess Twinkies and has set their introductory price 10 cents below the price of a Twinkie.This Is an example of which of the following?
A)Penetrating pricing
B)Skimming pricing
C)Life-cycle pricing
D)Competitive cycle pricing
Q4) What is the distinction between penetrating and predatory pricing?
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Chapter 6: Planning, The Balanced Scorecard, and Budgeting
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Sample Questions
Q1) Which of the following does not affect the cost of preparing a budget?
A)Time and resource requirement
B)The budgeting activities of competitors
C)Adaptability of departments
D)Motivation and behavior of individuals
Q2) Budgets are prepared by the top-level executives of Phififfer Company.This is an example of which type of budgeting?
A)participative
B)zero-based
C)mandated
D)ideal
Q3) Lichti Industries sold 50,000 ice chests at $20 each during April of 2010.Unit sales are projected to increase 10% in May and June while the selling price will be increased by $1.00 for May and another $1 in June.The estimated sales revenue for June of 2010 is:
A)$1,331,000
B)$1,210,000
C)$1,270,500
D)$1,155,000
Q4) Describe how the sales budget is related to the production budget.
Page 8
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Chapter 7: Accounting Information Systems
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Sample Questions
Q1) Which of the following accounts would normally have a credit balance?
A)Accounts Receivable
B)Retained Earnings
C)Inventory
D)Depreciation Expense
Q2) A database system differs from manual and computer-based transactions system in that-
A)A database system contains information about business events and accounting events
B)A database system only produces accounting reports
C)A database system produces more financial statements than transaction based systems
D)A database system produces only nonaccounting reports
Q3) Smithville Company purchased machinery four years ago for $24,000.Smithville estimates that the machinery will have a total useful life of six years.What amount will Smithville include in total assets for machinery?
A)$24,000
B)$8,000
C)$16,000
D)$4,000
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Chapter 8: Purchasinghuman Resourcespayment Process:
Recording and Evaluating Expenditure Process Activities
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Sample Questions
Q1) If wages payable increases between the beginning and end of a month,this indicates that
A)Wages paid were more than wages expense for the month.
B)Wages expense was more than wages paid for the month.
C)All wages expense for the month were paid as incurred.
D)No wages were paid during the period
Q2) JAFCO,Inc.reported insurance expense of $137,000,prepaid insurance of $8,300 at the beginning of the year,and prepaid insurance of $5,600 at the end of the year.Cash payments for insurance during the year were:
A)$134,300
B)$137,000
C)$139,700
D)$142,600
Q3) Why are subsidiary ledgers used?
Q4) Payroll deductions are a(n)______ to the employer at the time they are withheld.
A)expense
B)loss
C)liability
D)revenue
Page 10
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Chapter 9: Recording and Evaluating Conversion Process Activities
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Sample Questions
Q1) When a product has completed the manufacturing process what is the journal entry to record the transfer of its cost?
A)debit to Cost of Goods Sold credit Work-in-Process
B)debit to Finished Goods credit of Work-in-Process
C)debit to Cost of Good Sold credit to Finished Goods Inventory
D)debit to Work-in-Process Inventory credit to Finished Good Inventory
Q2) When the amount of over-underapplied manufacturing overhead is small,the Manufacturing Overhead account is generally closed out to:
A)Cost of Goods Sold
B)Work-in-Process Inventory
C)Cost of Goods Manufactured
D)Finished Goods Inventory,Work-in-Process Inventory,and Cost of Goods Sold
Q3) Which of the following is an activity of the conversion process?
A)Schedule production
B)Pay salary of Chief Financial Officer
C)Pay freight to ship finished inventory
D)Sell finished goods
Q4) The purchasing department is responsible for materials price variances.Do you agree or disagree with this statement? Explain.
Page 11
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Chapter 10: Recording and Evaluating Revenue Process Activities
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Sample Questions
Q1) The account "Advances from Customers" is a(n):
A)asset account
B)liability account
C)revenue account
D)contra-revenue account
Q2) A firm has accounts receivable of $100,000 and allowance for doubtful accounts of $15,000.How will this be reported on the financial statements?
A)$85,000 asset
B)$85,000 revenue
C)$100,000 asset and $15,000 liability
D)revenue of $100,000 and expense of $15,000
Q3) Cady,Inc.,had beginning and ending accounts receivable balances of $35,000 and 32,000,respectively.During the period,$100,000 was collected from credit customers.What was the amount of credit sales during the period?
A)$135,000
B)$132,000
C)$100,000
D)$97,000
Q4) Briefly describe the makeup of ending inventory under the FIFO and LIFO methods.
Page 12
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Chapter 11: Time Value of Money
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Sample Questions
Q1) Explain how inflation risk,business risk,and liquidity risk impact investment decisions.
Q2) Steve MacIntosh would like to have $20,000 in 5 years time to start his own business.The amount that MacIntosh would have to invest today,assuming an interest rate of 8% compounded quarterly,in order to reach his goal is:
A)$13,612.00
B)$29,386.00
C)$79,854.00
D)$13,459.43
Q3) Vladimir Boscak invested $35,000 on March 1,2009,and in return he received a total of $39,600,which he collected on March 1,2010.The rate of return on Vladimir's investment was:
A)11.6%
B)13.1%
C)12.3%
D)7.6%
Q4) If $18,000 was invested at 10% interest compounded semiannually,and it grew to be $32,326.20,the number of years the money was invested totaled:
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Chapter 12: Planning Investments: Capital Budgeting
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Sample Questions
Q1) Calcutta Industries has $4,500,000 in debt and $5,500,000 in stockholders' equity.If the debt carries an interest rate of 9%,and the stockholders are demanding a 16% rate of return,Calcutta's cost of capital is:
A)12.5%
B)12.85%
C)9%
D)16%
Q2) When calculating net present value of an investment,the present value of the expected future cash flows represents:
A)The market value of the investment
B)The cost of the investment
C)The maximum price the firm will pay for the investment given the firm's cost of capital
D)The price of the asset at the market rate of interest in effect at that point in time.
Q3) Why should qualitative factors be considered in the capital budgeting process?
Q4) Explain why both the timing and quantity of cash flows are significant in determining net present value.
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Chapter 13: Planning Equity Financing
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Sample Questions
Q1) Merchants Corporation has 30,000 shares of 6.5%,$100 par value cumulative preferred stock and 200,000 shares of $10 par value common stock issued and outstanding.There are two years of dividends in arrears on the preferred stock.Determine the amount of dividends each class of stock will receive in total and per share assuming the company declares a $935,000 dividend.
Q2) Nap,Olie,and Eon,who are partners in the Josephine Company,had beginning capital balances of $35,000,$62,000,and $28,000,respectively.If the partners share income and losses based on the ratio of their beginning capital balances,Olie's share of a $250,000 partnership loss would be:
A)$(155,000)
B)$(124,000)
C)$ (62,000)
D)$ (31,000)
Q3) What is par value? Why do corporations usually select a low par value?
Q4) In which of the following scenarios would financial leverage be maximized?
A)High times interest earned ratio and low debt to equity ratio
B)Low times interest earned ratio and low debt to equity ratio
C)Low times interest earned ratio and high debt to equity ratio
D)High times interest earned ratio and a high debt to equity ratio
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Chapter 14: Planning Debt Financing
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Sample Questions
Q1) Which of the following is NOT a true statement about bonds?
A)A company that issues bonds is (typically)borrowing money from the public not a specific person or institution.
B)A bond's prices in the secondary market changes as the market interest changes over time.
C)Bonds can be turned in by their holders prior to their maturity date and receive the bond's face value.
D)When a company issues convertible bonds it will not have to pay the face value of the bonds if the bonds are converted before the bond's maturity date.
Q2) Ellis Corporation wants to raise $500,000 by issuing a five year,noninterest-bearing note when the market rate is 8 percent compounded quarterly.What will the face value of the note be?
A)$336,486
B)$742,974
C)$734,664
D)$340,291
Q3) "Obviously,there is no interest expense on a non-interest-bearing note".Is this statement accurate? Explain.
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Chapter 15: Recording and Evaluating Capital Resource
Process Activities: Financing
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Sample Questions
Q1) When a company exercises a call feature and buys its outstanding bonds back prior to their maturity date:
A)the amount of cash paid depends on the market rate of interest at the time the bonds are called
B)any related unamortized discount will be removed from the books
C)the company will always pay less than face value for the bonds
D)both a and b are correct
Q2) What constitutes the carrying value of a non-interest-bearing note?
A)the amount due at maturity
B)the present value of the amount due at maturity
C)the amount due at maturity less interest recognized to date
D)the present value of the amount due at maturity less interest recognized to date
Q3) A capital lease is a form of:
A)lump sum note
B)installment note
C)none are correct
D)periodic payment and lump sum note
Q4) If a firm buys its own stock,how would the stock be reported on the balance sheet? Why is it reported that way?
Page 17
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Chapter 16: Recording and Evaluating Capital Resource
Process Activities: Investing
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Sample Questions
Q1) When an exchange is deemed to have no economic substance,the gain is not recognized and is subtracted from which of the following to determine the cost of the new asset.
A)The book value of the asset given
B)The book value of the asset received
C)The cash given
D)The fair value of the asset received
Q2) "Intangible assets are consistently unreported and underreported".Explain this statement.
Q3) Comptel Corporation purchased land,a building and equipment for a total cost of $525,000.The appraised values of the land,building and equipment were $150,000,$375,000 and $75,000,respectively.The purchase price allocated to the equipment should be:
A)$ 65,625
B)$ 75,000
C)$131,250
D)$150,000
Q4) Comment on this statement: "Salvage value is ignored when the declining balance depreciation method is used."
Page 18
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Chapter 17: Company Performance: Profitability
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Sample Questions
Q1) The firm's net income for 2010 was:
A)$110,000
B)$102,000
C)$ 80,000
D)unable to determine from the information given
Q2) Assume a company has no dilutive securities.What number will be greater?
A)basic earnings per share
B)diluted earnings per share
C)question cannot be answered
D)A & B should be the same
Q3) Kaiser Corporation's net income for 2010 is:
A)$3,001,700
B)$4,306,000
C)$4,450,000
D)$4,618,000
Q4) The firm's comprehensive income for 2008 was:
A)$110,000
B)$102,000
C)$ 80,000
D)unable to determine from the information given
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Chapter 18: Company Performance: Owners Equity and Financial Position
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Sample Questions
Q1) Prepaid Insurance would generally be reported on the balance sheet as a(n):
A)plant asset
B)investment
C)current asset
D)intangible asset
Q2) In 2010 Townsend Inc discovered that its ending inventory in 2009 was too big by $95,000.How much will Townsend'ss beginning retained earnings (Jan.1,2010)need to be adjusted to correct this error given a tax rate of 30%.
A)Increase retained earnings $66,500
B)Do not adjust retained earnings
C)Decrease retained earnings by $95,000
D)Decrease retained earnings $66,500.
Q3) Which of the following would not be classified as a current asset?
A)held-to-maturity securities
B)accounts receivable
C)inventory
D)cash
Q4) Comment on this statement: "Dividends are paid out of retained earnings; so,obviously,retained earnings is the cash generated by earnings".
Page 20
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Chapter 19: Company Performance: Cash Flows
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Q1) The proceeds from the issuance of common stock would be reported in the following section of the statement of cash flows:
A)investing activities
B)operating activities
C)financing activities
D)noncash investing and financing activities
Q2) The conversion of preferred stock into common stock would be reported in the following section of the statement of cash flows:
A)investing activities
B)operating activities
C)financing activities
D)noncash investing and financing activities
Q3) The purchase of machinery by signing a long-term note payable would be reported in the following section of the statement of cash flows:
A)investing activities
B)operating activities
C)financing activities
D)noncash investing and financing activities
Q4) What are the four primary purposes of the statement of cash flows?
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Chapter 20: Company Performance: Comprehensive Evaluation
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Sample Questions
Q1) When decision-makers want to know how well a firm manages the amounts owed to them by customers as compared to other firm's,they should use
A)current ratio
B)asset turnover
C)cash flow per share
D)average collection period
Q2) The denominator in the gross margin percentage is:
A)net sales
B)net income
C)average inventory
D)cost of goods sold
Q3) The times interest earned ratio was:
A)13.3
B)12.3
C)10.7
D)8.5
Q4) Is a firm that has a high dividend payout ratio better to invest in than one that has a low dividend payout ratio? Why or why not?
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