Accounting for Decision Making
Mock Exam
Course Introduction
Accounting for Decision Making is designed to equip students with the essential accounting knowledge and analytical skills necessary for effective decision making in business environments. The course emphasizes the use of financial and managerial accounting information for planning, controlling, and evaluating organizational performance. Topics include budgeting, cost analysis, financial statement interpretation, and the application of accounting data to strategic business decisions. Through case studies and practical exercises, students learn to interpret and utilize accounting information to solve real-world business problems and enhance overall organizational effectiveness.
Recommended Textbook Survey of Accounting 6th Edition by Carl S. Warren
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Page 2
Chapter 1: The Role of Accounting in Business
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Sample Questions
Q1) The branch of accounting related to the management's financial decisions is known as financial accounting.
A)True
B)False
Answer: False
Q2) A corporation is a business that is legally separate and distinct from its owners.
A)True
B)False
Answer: True
Q3) Debts owed by a business are referred to as:
A) accounts receivable.
B) equities.
C) stockholders' equity.
D) liabilities.
Answer: D
Q4) Creditors have preference to assets behind stockholders if a business fails.
A)True
B)False
Answer: False
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Chapter 2: Basic Accounting Concepts
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Sample Questions
Q1) When a notes payable account is paid in cash, the stockholders' equity in the business increases.
A)True
B)False
Answer: False
Q2) If Liabilities have a balance of $10,000 and Stockholders' Equity has a balance of $60,000, then Assets must have a balance of:
A) $50,000.
B) $60,000.
C) $70,000.
D) $10,000.
Answer: C
Q3) A _____ is an economic event that under generally accepted accounting principles affects an element of the financial statements and must be recorded.
A) framework
B) control
C) set of rules
D) transaction
Answer: D
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Page 4
Chapter 3: Accrual Accounting Concepts
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Sample Questions
Q1) Under the balance sheet classification of property, plant, and equipment, some accounts need adjustment and others do not. Which do and why? Which do not and why?
Answer: Plant and equipment both need an adjustment at the end of the period for depreciation and thus on the balance sheet for accumulated deprecation. Land is not depreciated; therefore, no adjusting entry is necessary. Land continues to be accounted for on the books at its original purchase price.
Q2) Using accrual accounting, revenue is recorded and reported only:
A) when cash is received without regard to when the services are rendered.
B) when the services are rendered without regard to when cash is received.
C) when cash is received before services are rendered.
D) if cash is received after the services are rendered.
Answer: B
Q3) An adjusting entry would adjust an expense account so that the expense is reported when incurred.
A)True
B)False
Answer: True
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Chapter 4: Accounting for Merchandising Businesses
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Sample Questions
Q1) Which expenses are subtracted from gross profit to arrive at income from operations?
A) All expenses
B) Cost of merchandise sold
C) Operating expenses
D) Sales discounts
Q2) In a transaction where purchased merchandise has been returned, the buyer will increase the Sales Returns and Allowances account and the seller will increase the Purchases Returns and Allowances account.
A)True
B)False
Q3) On the income statement, sales returns and allowances and sales discounts are added to gross sales to yield net sales.
A)True
B)False
Q4) Sales discounts is used in accounting for transactions with customers.
A)True
B)False
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Page 6
Chapter 5: Sarbanes-Oxley, Internal Control, and Cash
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Sample Questions
Q1) A check drawn by a depositor for $915 in payment of a liability was recorded in the depositor's book as $195. What adjustment is required in the depositor's accounts?
A) Decrease Accounts Payable; decrease Cash
B) Increase Cash; decrease Accounts Receivable
C) Increase Cash; increase Accounts Payable
D) Increase Accounts Receivable; decrease Cash
Q2) A check drawn by a depositor for $295 in payment of a liability was recorded in the depositor's book as $925. The $630 difference would be included on the bank reconciliation as a(n):
A) addition to the cash balance per books.
B) addition to the cash balance per bank.
C) deduction from the cash balance per bank.
D) deduction from the cash balance per books.
Q3) A voucher is a written authorization to make a cash payment.
A)True
B)False
Q4) Explain why one person should not be permitted to purchase, receive, and pay for supplies.
Q5) What is the purpose of the Sarbanes-Oxley Act of 2002, and why was it enacted?
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Chapter 6: Receivables and Inventories
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Sample Questions
Q1) Use the following data to calculate the cost of ending inventory under the FIFO method. \(\begin{array}{lll}
15 \text { units at } \$ 20 \text { each } & \text { Beginning Inventory } & \text { September 1 } \\
20 \text { units at } \$ 25 \text { each } & \text { Purchase } & \text { September 10 } \\
25 \text { units at } \$ 28 \text { each } & \text { Purchase } & \text { September } 20 \\
30 \text { units } & \text { Ending Inventory } & \text { September } 30 \end{array}\)
A) $825
B) $750
C) $675
D) $840
Q2) Allowance for Doubtful Accounts is a contra equity account.
A)True B)False
Q3) Other than accounts receivable and notes receivable, name other receivables that might be included on the balance sheet.
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Chapter 7: Fixed Assets and Intangible Assets
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Sample Questions
Q1) A company acquired some land for $80,000 to construct a new office complex. Legal fees paid were $2,300, delinquent taxes assumed were $3,400, and $5,850 was paid to remove an old building. Materials salvaged from the demolition of the building were sold for $1,950. Determine the cost of the land to be reported on the balance sheet.
A) $93,500
B) $91,550
C) $85,700
D) $89,600
Q2) A machine was purchased for $60,000. It has a useful life of 5 years and a residual value of $6,000. Determine the annual depreciation expense using the straight-line method?
A) $13,200
B) $12,000
C) $11,000
D) $10,800
Q3) The double-declining-balance method of depreciation is also referred to as an accelerated depreciation method.
A)True
B)False
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Page 9
Chapter 8: Liabilities and Stockholders Equity
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Sample Questions
Q1) Prior to the last weekly payroll period of the calendar year, the cumulative earnings of employees A and B are $106,150 and $91,000, respectively. Their earnings for the last completed payroll period of the year are $850 each. Social security tax rate is 6% on maximum of $106,800. All earnings are subject to Medicare tax of 1.5%. Assuming that the payroll will be paid on December 29, what will be the employer's total FICA tax for this payroll period on the two salary amounts of $850 each?
A) $127.50
B) $115.50
C) $76.50
D) $63.75
Q2) When the market rate of interest on bonds is equal to the contract rate, the bonds will sell at:
A) a premium.
B) their face value.
C) a discount.
D) a discount or a premium.
Q3) Cash dividends are not paid on shares of treasury stock.
A)True
B)False
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Page 10
Chapter 9: Financial Statement Analysis
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Sample Questions
Q1) Which of the following measures the liquidity position of a corporation?
A) Earnings per share
B) Inventory turnover
C) Current ratio
D) Number of times interest charges earned
Q2) Solvency analysis focuses on the ability of a business to make a profit.
A)True
B)False
Q3) Sarbanes-Oxley Act of 2002 requires which of the following report to be prepared by the management of the company?
A) A report evaluating the probability that the company will remain in business.
B) A report showing management's assessment of internal control.
C) A report assessing the market value of the company's current stock price.
D) A report identifying the competency of the company's board of directors.
Q4) The ability of a business to earn a reasonable amount of income is referred to as the factor of:
A) leverage.
B) profitability.
C) wealth.
D) solvency.
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Chapter 10: Accounting Systems for Manufacturing Businesses
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Sample Questions
Q1) Which of the following would be a period costs for a textbooks printing company?
A) Wages of a press operator
B) Utility costs of the factory
C) Advertising expenses
D) Paper costs
Q2) Which of the following is an example of direct materials cost for an automobile manufacturer?
A) Cost of oil lubricants for factory machinery
B) Cost of wages of assembly worker
C) Varnish for coating
D) Cost of interior upholstery
Q3) A company may use a job order cost system for some of its products and a process cost system for other products.
A)True
B)False
Q4) The current year's advertising costs are normally considered as product costs. A)True
B)False
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Chapter 11: Cost Behavior and Cost-Volume-Profit Analysis
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Sample Questions
Q1) Direct materials and direct labor costs are examples of variable costs of production.
A)True
B)False
Q2) The range of activity over which changes in cost are of interest to management is called the relevant range.
A)True
B)False
Q3) Cost behavior refers to the methods used to estimate costs for use in managerial decision making.
A)True
B)False
Q4) Which ratio indicates the percentage of each sales dollar that is available to cover fixed costs and to provide a profit?
A) Margin of safety ratio
B) Contribution margin ratio
C) Costs and expenses ratio
D) Profit ratio
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Chapter 12: Differential Analysis and Product Pricing
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Sample Questions
Q1) Venus Co. can further process Product X to produce Product Y. Product X is currently selling for $18 per pound and costs $12.50 per pound to produce. Product Y would sell for $32 per pound and would require an additional cost of $8.75 per pound to produce. Based on the information provided for Venus Co., what is the differential revenue of producing Product Y?
A) $14 per pound
B) $8.75 per pound
C) $7 per pound
D) $5.25 per pound
Q2) In using the variable cost concept of applying the cost-plus approach to product pricing, variable manufacturing costs and variable selling and administrative expenses must be covered by the markup.
A)True
B)False
Q3) A cost that will not be affected by later decisions is termed:
A) historical cost.
B) differential cost.
C) sunk cost.
D) replacement cost.
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Page 14
Chapter 13: Budgeting and Standard Cost Systems
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Q1) A budget performance report compares actual results with the budgeted amounts and reports differences for possible investigation.
A)True
B)False
Q2) Department managers plan lower goals than possible in order to build in a cushion for unexpected events. This result in:
A) budgetary slack.
B) zero-based budgeting.
C) goal conflict.
D) flexible budgeting.
Q3) Supervisor salaries and indirect factory wages would normally appear in the direct labor cost budget.
A)True
B)False
Q4) Which of the following would not lend itself to applying direct labor variances?
A) Computer help desk operator
B) Administrative assistant
C) Customer service personnel
D) Telemarketer
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Chapter 14: Performance Evaluation for Decentralized Operations
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Q1) If income from operations for a division is $6,000, invested assets are $25,000, and sales are $30,000, the investment turnover would be 5.0.
A)True
B)False
Q2) Division Q for Mott Company has a rate of return on investment of 28% and an investment turnover of 1.4. What is the profit margin?
A) 28%
B) 20%
C) 14%
D) 39.2%
Q3) In evaluating the profit center manager, the income from operations should be compared:
A) across profit centers.
B) to historical performance or budget.
C) to the competitor's net income.
D) to the total company's earnings per share.
Q4) The ratio of sales to invested assets is termed investment turnover.
A)True
B)False
16
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Chapter 15: Capital Investment Analysis
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Sample Questions
Q1) Both proposal M, and N cost $800,000, have a 6-year life, and have expected total cash flows of $1,200,000. Proposal M is expected to provide equal annual net cash flows of $200,000, while the net cash flows for Proposal N are as follows: \(\begin{array}{ll}
\$ 250,000 & \text { Year 1 } \\
\$ 225,000 & \text { Year 2 } \\
\$ 200,000 & \text { Year 3 } \\
\$ 200,000 & \text { Year 4 } \\
\$ 175,000 & \text { Year 5 } \\
\$ 150,000 & \text { Year 6 }
\end{array}\) Determine the cash payback period for each proposal.
Q2) The primary advantages of the average rate of return method of analyzing a capital investment proposal are its ease of computation and the fact that:
A) it emphasizes the amount of income earned over the life of the proposal.
B) there is less possibility of loss from changes in economic conditions and obsolescence when the commitment is short-term.
C) it is especially useful to managers whose primary concern is liquidity.
D) it considers the time value of money.
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