Accounting for Decision Making Exam Preparation Guide
Course Introduction
Accounting for Decision Making is a course designed to introduce students to the fundamental principles and techniques of accounting as they apply to business decision-making. The course explores how financial and managerial accounting information is used by managers and stakeholders to plan, control, and evaluate organizational operations and performance. Key topics include analysis of financial statements, budgeting, cost-volume-profit analysis, relevant costing, and performance measurement. Emphasis is placed on interpreting accounting data to make informed and ethical business decisions that support effective resource allocation and organizational success.
Recommended Textbook
Financial Managerial Accounting 14th Edition by Carl Warren
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Page 2
Chapter 1: Introduction to Accounting and Business
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Sample Questions
Q1) A financial statement user would determine if a company was profitable or not during a specific period of time by reviewing the
A) income statement
B) balance sheet
C) statement of cash flows
D) statement of retained earnings
Answer: A
Q2) Which of the following is true in regards to a limited liability company?
A) Makes up 10% of business organizations in the United States.
B) Combines the attributes of a partnership and a corporation.
C) Provides tax and liability advantages to the owners.
D) All are correct.
Answer: D
Q3) How does the payment of rent for equipment affect the accounting equation?
A) assets increase; assets decrease
B) assets decrease; stockholders' equity decreases
C) assets decrease; liabilities increase
D) assets increase; stockholders' equity increases
Answer: B
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Page 3
Chapter 2: Analyzing Transactions
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Sample Questions
Q1) Expenses result from selling services or products to customers.
A)True
B)False
Answer: False
Q2) The classification and normal balance of the accounts payable account is
A) an asset with a credit balance
B) a liability with a credit balance
C) stockholders' equity with a credit balance
D) revenue with a credit balance
Answer: B
Q3) The chart of accounts is designed to
A) alphabetize the accounts to make reading easier for financial statement users
B) organize accounts in order of dollar amount to simplify the accounting information for users
C) summarize the transactions and determine ending account balances
D) meet the information needs of a company's managers and other users of its financial statements
Answer: D
Q4) Prepare a trial balance,listing the accounts in their proper order.
Answer: 11ea8952_b5b6_efd3_861b_e994a5741833_TB6238_00
Page 4
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) On January 1,Power House Co.prepaid the annual rent of $10,140.Prepare the journal entry to record this transaction.
Answer: 11ea8952_b5af_010a_861b_0b3297b44209_TB6238_00
Q2) Prepaid advertising,representing payment for the next quarter,would be reported on the balance sheet as a(n)
A) asset
B) liability
C) contra asset
D) stockholders' equity
Answer: A
Q3) If there is a balance in the unearned subscriptions account after adjusting entries are made,it represents a(n)
A) deferral
B) accrual
C) dividend
D) revenue
Answer: A
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Unearned revenues that will be earned in a relatively short period of time are listed on the balance sheet as current assets.
A)True
B)False
Q2) Which of the following is not true about closing entries?
A) There are four closing entries that update the stockholders' equity account.
B) After the second closing entry,the income summary account is equal to the net income or loss for the period.
C) All real accounts are closed at the end of the period.
D) By closing nominal accounts at the end of the period to zero,it is possible to isolate next period's information correctly.
Q3) Assets,liabilities,and stockholders' equity accounts are real accounts and do not get closed at the end of the period.
A)True
B)False
Q4) The majority of businesses end their fiscal year on December 31.
A)True
B)False
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6
Chapter 5: Accounting for Merchandising Businesses
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Q1) Under the perpetual inventory system,all purchases of merchandise are debited to the account
A) Inventory
B) Cost of Goods Sold
C) Inventory Available for Sale
D) Purchases
Q2) In the merchandising income statement,sales will be reduced by administrative expenses to arrive at operating income.
A)True
B)False
Q3) What type of company would normally offer trade discounts to its customers?
A) service companies
B) retailers
C) wholesalers
D) online retailers
Q4) A sales discount encourages customers to pay accounts more quickly than if a discount were not available.
A)True
B)False
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Chapter 6: Inventories
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Sample Questions
Q1) It's not unusual for large companies to use different inventory costing methods for different segments of its inventory.
A)True
B)False
Q2) During a period of falling prices,which of the following inventory methods generally results in the lowest balance sheet amount for inventory?
A) average cost method
B) LIFO method
C) FIFO method
D) cannot tell without more information
Q3) The inventory costing method that reports the most current prices in ending inventory is
A) FIFO
B) specific identification
C) LIFO
D) average cost
Q4) A physical inventory should be taken at the end of every month.
A)True
B)False
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Chapter 7: Internal Control and Cash
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Sample Questions
Q1) A bank reconciliation should be prepared periodically because
A) the company's records and the bank's records are in agreement
B) the bank has not recorded all of its transactions
C) any differences between the company's records and the bank's records should be determined,and any errors made by either party should be discovered and corrected
D) the bank must make sure that its records are correct
Q2) Which of the following would be subtracted from the balance per bank on a bank reconciliation?
A) outstanding checks
B) deposits in transit
C) notes collected by the bank
D) service charges
Q3) Entries are made to the petty cash account when
A) making payments out of the fund
B) recording shortages in the fund
C) replenishing the petty cash fund
D) establishing the fund
Q4) Why would a bank require a company to maintain a compensating balance?
Q5) List the principal advantages of electronic funds transfers.
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Chapter 8: Receivables
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Sample Questions
Q1) Generally accepted accounting principles do not normally allow the use of the direct write-off method of accounting for uncollectible accounts.
A)True
B)False
Q2) The balance in Allowance for Doubtful Accounts will directly impact the end-of-period adjustment for the bad debt expense when using which of the following methods?
A) allowance method based on aging the receivables
B) direct write-off method
C) accrual method
D) declining value method
Q3) If the direct write-off method of accounting for uncollectible receivables is used,what general ledger account is debited to write off a customer's account as uncollectible?
A) Uncollectible Accounts Receivable
B) Accounts Receivable
C) Allowance for Doubtful Accounts
D) Bad Debt Expense
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Chapter 9: Long-Term Assets: Fixed and Intangible
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Sample Questions
Q1) A used machine with a purchase price of $77,000,requiring an overhaul costing $8,000,installation costs of $5,000,and special acquisition fees of $3,000,would have a cost basis of
A) $93,000
B) $90,000
C) $82,000
D) $85,000
Q2) Which of the following is included in the cost of constructing a building?
A) insurance costs during construction
B) cost of paving the parking lot
C) cost of repairing vandalism damage during construction
D) cost of removing the demolished building existing on the land when it was purchased
Q3) In a lease contract,the party who legally owns the asset is the
A) lessee
B) lessor
C) operator
D) banker
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Chapter 10: Liabilities: Current,installment Notes,and
Contingencies
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Sample Questions
Q1) On January 5,Thomas Company,a calendar-year company,issued $1,000,000 of notes payable,of which $250,000 is due on January 1 each of the next four years.The proper balance sheet presentation on December 31 is
A) Current Liabilities,$1,000,000
B) Current Liabilities,$250,000; Long-Term Debt,$750,000
C) Long-Term Debt,$1,000,000
D) Current Liabilities,$750,000; Long-Term Debt,$250,000
Q2) McKay Company sells merchandise with a one-year warranty.In Year 1,sales consisted of 1,200 units.It is estimated that warranty repairs will average $10 per unit sold,and 30% of the repairs will be made in Year 1 and 70% in Year 2.In the Year 1 income statement,McKay should show warranty expense of
A) $3,600
B) $8,400
C) $12,000
D) $0
Q3) Federal unemployment taxes are paid by the employer and the employee.
A)True
B)False
Q4) List five internal controls that relate directly to payroll.
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Chapter 11: Liabilities: Bonds Payable
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Q1) When the market rate of interest was 12%,Halprin Corporation issued $1,000,000,11%,10-year bonds that pay interest annually.The selling price of this bond issue was
A) $321,970
B) $1,000,000
C) $943,494
D) $621,524
Q2) The times interest earned ratio is calculated by dividing Bonds Payable by Interest Expense.
A)True
B)False
Q3) If bonds are issued at a discount,it means that the
A) bondholder will receive effectively less interest than the contractual rate of interest
B) market interest rate is lower than the contractual interest rate
C) market interest rate is higher than the contractual interest rate
D) financial strength of the issuer is suspect
Q4) A $500,000 bond issue on which there is an unamortized discount of $35,000 is redeemed for $475,000.Journalize the redemption of the bonds.
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Page 13
Chapter 12: Corporations: Organization, stock Transactions, and Dividends
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Sample Questions
Q1) The account used to record the difference when issue price exceeds par value of stock
A)authorized shares
B)issued shares
C)outstanding shares
D)par value
E)common stock
F)preferred stock
G)Paid-In Capital in Excess of Par
H)transfer agent
Q2) A 10% stock dividend will increase the number of shares outstanding but the book value per share will decrease.
A)True
B)False
Q3) The two main sources of stockholders' equity are
A) investments by stockholders and net income retained in the business
B) investments by stockholders and dividends paid
C) net income retained in the business and dividends paid
D) investments by stockholders and purchases of assets
Page 14
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Chapter 13: Statement of Cash Flows
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Sample Questions
Q1) A company purchases equipment for $32,000 cash.This transaction should be shown on the statement of cash flows under
A) investing activities
B) financing activities
C) noncash investing and financing activities
D) operating activities
Q2) Using the indirect method,if land costing $85,000 was sold for $145,000,the amount reported in the financing activities section of the statement of cash flows would be $85,000.
A)True
B)False
Q3) Cash dividends of $45,000 were declared during the year.Cash dividends payable were $10,000 at the beginning of the year and $15,000 at the end of the year.The amount of cash for the payment of dividends during the year is
A) $50,000
B) $40,000
C) $55,000
D) $35,000
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15
Chapter 14: Financial Statement Analysis
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Sample Questions
Q1) A common measure of liquidity is
A) the asset turnover ratio
B) dividends per share of common stock
C) the accounts receivable turnover
D) the profit margin
Q2) Unusual items affecting the current period's income statement consist of changes in accounting principles and discontinued operations.
A)True
B)False
Q3) Leverage implies that a company
A) contains debt financing
B) contains equity financing
C) has a high current ratio
D) has a high earnings per share
Q4) If a firm has a current ratio of 2,the subsequent collection of a 60-day note receivable on account will cause the ratio to decrease.
A)True
B)False
Q5) Define solvency and profitability.How are they alike?
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Chapter 15: Introduction to Managerial Accounting
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Sample Questions
Q1) The production labor wages for the bar stool assemblers
A)Direct
B)Indirect
Q2) Allen Company used $71,000 of direct materials and incurred $37,000 of direct labor costs during the current year.Indirect labor amounted to $2,700 while indirect materials used totaled $1,600.Other operating costs pertaining to the factory included utilities of $3,100,maintenance of $4,500,supplies of $1,800,depreciation of $7,900,and property taxes of $2,600.There was no beginning or ending finished goods inventory,but work in process inventory began the year with a $5,500 balance and ended the year with a $7,500 balance.
Prepare a statement of cost of goods manufactured.
Q3) A cost object indicates how costs are related or identified.
A)True
B)False
Q4) For a construction contractor,the wages of carpenters would be classified as factory overhead cost.
A)True
B)False
Q5) Differentiate between a line department and a staff department.
Page 17
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Chapter 16: Job Order Costing
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Sample Questions
Q1) At the end of the period,Carson Company had the following balances in selected accounts:
Materials $ 80,000
Finished goods 190,000
Work in process 70,000
Cost of goods sold 1,000,000
Factory overhead 30,000
(a)The factory overhead balance is relatively small; prepare the journal entry to close the Factory
Overhead account assuming a debit balance.What does a debit balance mean?
(b)The factory overhead balance is relatively small; prepare the journal entry to close the Factory
Overhead account assuming a credit balance.What does a credit balance mean?
Q2) As product costs are incurred in the manufacturing process,they are accounted for as assets and reported on the balance sheet as inventory.
A)True
B)False
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Chapter 17: Process Cost Systems
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Q1) The journal entry to record the flow of costs into Department 1 for direct labor is
A) Work in Process-Department 1 65,000
Wages Payable 65,000
B) Wages Payable 125,000
Work in Process-Department 1 125,000
C) Work in Process-Department 1 125,000
Wages Payable 125,000
D) Wages Payable 65,000
Work in Process-Department 1 65,000
Q2) The materials cost per equivalent unit (to the nearest cent)for April is
A) $2.60
B) $2.81
C) $3.02
D) $2.26
Q3) Conversion and direct materials are generally both added at the end of the production process.
A)True
B)False
Q4) Discuss how equivalent units are computed under the average cost method.
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Chapter 18: Activity-Based Costing
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Sample Questions
Q1) Calculate the cost of services for a haircut.
A) $4.00
B) $7.50
C) $3.50
D) $11.50
Q2) Determine the activity-based cost for each disk drive unit.
A) $92.25
B) $130.69
C) $394.12
D) $279.57
Q3) What is the overhead cost per unit for Rings?
A) $65.25
B) $23.25
C) $44.10
D) $64.50
Q4) When production departments differ significantly in their manufacturing process,it is recommended that the single plantwide factory overhead rate be used for allocating factory overhead.
A)True
B)False
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Chapter 19: Cost-Volume-Profit Analysis
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Q1) Which of the following describes the behavior of the fixed cost per unit?
A) decreases with increasing production
B) decreases with decreasing production
C) remains constant with changes in production
D) increases with increasing production
Q2) Assume that Corn Co.sold 8,000 units of Product A and 2,000 units of Product B during the past year.The unit contribution margins for Products A and B are $30 and $60,respectively.Corn has fixed costs of $378,000.The break-even point in units is
A) 8,000 units
B) 6,300 units
C) 12,600 units
D) 10,500 units
Q3) Variable costs are costs that remain constant in total dollar amount as the level of activity changes.
A)True
B)False
Q4) If direct materials cost per unit increases,the break-even point will decrease.
A)True
B)False
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Chapter 20: Variable Costing for Management Analysis
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Q1) Which of the following is(are)reason(s)for easy identification and control of variable manufacturing costs under the variable costing method?
A) variable and fixed costs are reported separately.
B) variable costs can be controlled by the operating management.
C) fixed costs,such as property insurance,are normally the responsibility of higher management not the operating management.
D) All of the above are true.
Q2) On the variable costing income statement,the figure representing the difference between manufacturing margin and contribution margin is the:
A) fixed manufacturing costs
B) variable cost of goods sold
C) fixed selling and administrative expenses
D) variable selling and administrative expenses
Q3) Service firms can only have one activity base for analyzing changes in costs.
A)True
B)False
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Chapter 21: Budgeting
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Q1) The budgeted balance sheet assumes that all operating and financing plans are met.
A)True
B)False
Q2) The Tough Jeans Company produces two different styles of jeans,Working Life and Social Life.The company sales budget estimates that 400,000 of the Working Life jeans and 250,000 of the Social Life jeans will be sold during the year.The company begins with 9,000 pairs of Working Life and 18,000 pairs of Social Life.The company desires ending inventory of 7,500 of Working Life and 10,000 Social Life.Prepare a production budget for the year.
Q3) Budgeted production for product XXX during the month is
A) 498,000 units
B) 502,000 units
C) 534,000 units
D) 566,000 units
Q4) What is the budgeted units of production for February?
A) 186,000
B) 181,000
C) 222,000
D) 174,000
Page 23
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Chapter 22: Evaluating Variances From Standard Costs
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Q1) The variable factory overhead controllable variance is
A) $73,250 favorable
B) $73,250 unfavorable
C) $59,400 favorable
D) $59,400 unfavorable
Q2) An example of a nonfinancial measure is the number of customer complaints.
A)True
B)False
Q3) Financial reporting systems that are guided by the principle of exceptions concept focus attention on variances from standard costs.
A)True
B)False
Q4) The standard price and quantity of direct materials are separated because A) GAAP and IFRS reporting requires separation
B) direct materials prices are controlled by the purchasing department and quantity used is controlled by the production department
C) standard prices are more difficult to estimate than standard quantities
D) standard quantities change more frequently than standard prices
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Chapter 23: Evaluating Decentralized Operations
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Q1) A manager in a cost center also has responsibility and authority over the revenues.
A)True
B)False
Q2) Which of the following is a measure of a cost center manager's performance?
A) budget performance report
B) rate of return and residual income measures
C) divisional income statements
D) balance sheet
Q3) If Division Q's yearly income from operations was $30,000 on invested assets of $200,000,the rate of return on investment is 15%.
A)True
B)False
Q4) The gross profit for the Locomotive Division is
A) $57,960
B) $14,790
C) $27,240
D) $47,280
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Chapter 24: Differential Analysis and Product Pricing
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Q1) Olsen Company produces two products.Product A has a contribution margin of $30 and requires 10 machine hours.Product B has a contribution margin of $24 and requires 4 machine hours.Determine the most profitable product assuming the machine hours are the constraint.
Q2) What is the differential revenue of producing Product D?
A) $6.75 per pound
B) $22.25 per pound
C) $18.00 per pound
D) $6.25 per pound
Q3) The Porter Beverage Factory owns a building for its operations.Porter uses only half of the building and is considering two options for the unused space.The Popcorn Store would like to purchase the half of the building that is not being used for $550,000.A 5% commission would have to be paid at the time of purchase.Salty Snacks would like to lease the half of the building for the next 5 years at $100,000 each year.Stewart would have to continue paying $15,000 of property taxes each year and $2,000 of yearly insurance on the property,according to the proposed lease agreement.
Determine the differential income or loss from the lease alternative.
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Chapter 25: Capital Investment Analysis
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Q1) Methods that ignore present value in capital investment analysis include the cash payback method.
A)True
B)False
Q2) The expected period of time that will elapse between the date of a capital investment and the complete recovery in cash of the amount invested is called the discount period.
A)True
B)False
Q3) If a proposed expenditure of $70,000 for a fixed asset with a 4-year life has an annual expected net cash flow and net income of $32,000 and $12,000,respectively,the cash payback period is 2.5 years.
A)True
B)False
Q4) The methods of evaluating capital investment proposals can be grouped into two general categories that can be referred to as (1)methods that ignore present value and (2)present values methods.
A)True
B)False
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Chapter 26: Lean Manufacturing and Activity Analysis
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Q1) Employee involvement does not include performing any indirect manufacturing functions.
A)True
B)False
Q2) In a lean environment,the journal entry to record conversion costs would include a debit to the raw and in process inventory account.
A)True
B)False
Q3) From the above schedule,compute the percentage of non-value-added activities.
Q4) How are the objectives of lean manufacturing achieved?
A) Product-oriented production layout
B) Employee involvement
C) Supplier partnering
D) All of the above
Q5) Which of the following is not a prevention cost?
A) preventive maintenance
B) operator training
C) design engineering
D) testing finished products
Q6) From the above schedule,calculate the internal failure costs.
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