Accounting for Decision Making
Mock Exam
Course Introduction
Accounting for Decision Making introduces students to the fundamental principles and practices of accounting, with a focus on how financial and managerial information supports effective decision making within organizations. Through analysis of financial statements, budgeting processes, and cost behavior, students learn how to interpret accounting data, evaluate performance, and make informed strategic choices. Emphasis is placed on real-world applications, ethical considerations, and the use of accounting information to solve management problems and drive business success.
Recommended Textbook
Financial and Managerial Accounting 9th Edition by Belverd E. Needles
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Page 2
Chapter 1: Uses of Accounting Information and the Financial Statements
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Sample Questions
Q1) Barrett Company's stockholders' equity equals one-fourth of the company's total assets.The company's liabilities are $360,000.What is the amount of the company's stockholders' equity?
Answer: Assets = Liabilities + Stockholders' Equity
A = 3/4 A + 1/4 A
A = $360,000 ÷ 0.75 = $480,000
Stockholders' Equity = $480,000 - $360,000 = $120,000
Q2) Payment to a creditor is an example of a nonexchange business transaction. A)True
B)False
Answer: False
Q3) Transfer of ownership will not affect the continuity of a A) corporation..
B) sole proprietorship.
C) partnership
D) corporation or partnership.
Answer: A
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Page 3
Chapter 2: Analyzing Business Transactions
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Sample Questions
Q1) Which of the following errors will not cause the debit and credit columns of the trial balance to be unequal?
A) A debit entry was recorded in the wrong account.
B) A debit was entered in an account as a credit.
C) The account balance was carried to the wrong column of the trial balance.
D) The balance of an account was incorrectly computed.
Answer: A
Q2) Which of the following accounts is increased with a debit?
A) Common Stock
B) Rent Payable
C) Legal Fees Earned
D) Dividends
Answer: D
Q3) When a business hires a new employee,a recordable transaction has occurred.
A)True
B)False
Answer: False
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Chapter 3: Measuring Business Income
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Sample Questions
Q1) A net loss results in a decrease in A) expenses.
B) liabilities.
C) stockholders' equity.
D) assets.
Answer: C
Q2) Answer the following questions.(Show your work.)
a. Equipment is purchased for $48,000, to be used for eight years. Assuming zero value at the end of eight years, what is the equipment's carrying value after two years and three months?
b. Prepaid Insurance has an $800 balance prior to adjustment. By year end, one-fourth has expired. What will be the balance in Prepaid Insurance after the adjusting entry has been made?
c. A company purchased $210 in supplies during the year, recorded $120 in Supplies Expense, and ended with $350 of supplies. What was the beginning balance of Supplies?
Answer: a.$34,500 [$48,000 - ($48,000 ÷ 8 = $6,000 ÷ 12 = $500 per month * 27 months = $13,500)]
b.$600 [$800 - ($800 ÷ 4)]
c.$260 ($350 + $120 = $470 - $210)
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Page 5
Chapter 3: Supplement - Closing Entries and the Work Sheet
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Sample Questions
Q1) The Adjusted Trial Balance columns of the work sheet are prepared by combining the Trial Balance and Adjustments columns of the work sheet.
A)True
B)False
Q2) The amount for Dividends will appear in the Income Statement columns of a work sheet.
A)True
B)False
Q3) The total assets and the total liabilities and stockholders' equity on the balance sheet are the same as the totals of the Balance Sheet columns on the work sheet.
A)True
B)False
Q4) Monty Milko is the only accountant employed at Gamma Enterprises,Inc.When asked by the company president if the financial statements had been prepared yet,Milko answered that he had completed all of his work except the preparation of the statements.He added that the net income that would appear on the current income statement would be $369,075.Identify the two instances where Milko would have learned the net income before he actually prepared the income statement.
Page 6
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Chapter 4: Financial Reporting and Analysis
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Sample Questions
Q1) Sean and Dylan Matthews are brothers who each own and operate sports memorabilia shops in neighboring towns.They decide to have a contest to see whose shop can be more profitable for the year.At year-end,Sean's records show sales of $105,000,cost of goods sold of $55,000,and operating expenses of $21,000.The records of Dylan's shop reveal sales of $108,000,cost of goods sold of $62,000,and operating expenses of $19,000.Dylan's shop also had other revenue of $3,000 received for allowing the shop to be used in taping a television show.Each brother claims to have won the contest.Provide explanations as to why each would think so,and then name the winner.
Q2) Working capital measures
A) the excess of current assets over current liabilities-what is on hand to continue business operations.
B) the ability to earn a satisfactory income.
C) the amount of debt in the company.
D) the profitability of the business.
Q3) Liabilities have which of the following two major categories?
A) Accounts payable and notes payable
B) Contributed capital and retained earnings
C) Current and long term
D) Unearned revenues and other payables
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Page 7
Chapter 5: The Operating Cycle and Merchandising Operations
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Sample Questions
Q1) The entry to record a purchase of $6,000 in merchandise assuming terms of 2/10,n/30 and a periodic inventory system would include a(n)
A) increase to Accounts Payable for $6,000.
B) increase to Purchases Discounts for $120.
C) decrease to Purchases for $6,000.
D) decrease to Accounts Payable for $5,880.
Q2) Under the perpetual inventory system,which of the following accounts would not be used?
A) Cost of Goods Sold
B) Merchandise Inventory
C) Sales
D) Purchases
Q3) When a business is able to deposit its credit card sales invoices directly into a special bank account,it debits Cash,not Accounts Receivable.
A)True
B)False
Q4) When the buyer bears the transportation charge,it is called freight-out.
A)True
B)False
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Chapter 6: Inventories
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Sample Questions
Q1) The costs included in work in process and finished goods inventories would properly contain manufacturing overhead costs.
A)True
B)False
Q2) The LIFO method agrees with the actual physical goods flow in most businesses.
A)True
B)False
Q3) The FIFO inventory method produces the most up-to-date figure for ending inventory.
A)True
B)False
Q4) Periodic and perpetual are examples of inventory costing systems. A)True
B)False
Q5) Why are the amounts determined for ending inventory and cost of goods sold the same under both the periodic and perpetual inventory systems when FIFO is used but not when LIFO is used?
Q6) Inventory turnover is a measure expressed in terms of a percentage. A)True B)False
Page 9
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Chapter 7: Cash and Receivables
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Sample Questions
Q1) Under the allowance method,uncollectible accounts must be estimated if the matching rule is to be followed.
A)True
B)False
Q2) Use this information to answer the following question. The general ledger account for Accounts Receivable shows a debit balance of $50,000.Allowance for Uncollectible Accounts has a credit balance of $1,000.Net sales for the year were $522,000.In the past,2 percent of sales have proved uncollectible,and an aging of accounts receivable accounts results in an estimate of $13,500 of uncollectible accounts. Using the percentage of net sales method,Uncollectible Accounts Expense would be debited for
A) $9,440.
B) $11,440.
C) $1,000.
D) $10,440.
Q3) A company's acceptance of credits cards,like MasterCard,is an example of factoring with recourse.
A)True
B)False
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Page 10
Chapter 8: Current Liabilities and Fair Value Accounting
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Sample Questions
Q1) Compound interest is computed quarterly on $700 for seven years at 12 percent annual interest.The future value table is used by multiplying the $700 by which factor?
A) 28 periods at 3 percent
B) 7 periods at 3 percent
C) 7 periods at 12 percent
D) 28 periods at 7 percent
Q2) Because failure to record a liability generally leads to failure to record an expense,it usually results in an overstatement of income.
A)True
B)False
Q3) An employee has gross earnings of $600 and withholdings of $45.90 for social security and Medicare taxes and $60 for income taxes.The employer pays $45.90 for social security and Medicare taxes and $4.80 for FUTA.The total cost of this employee to the employer is
A) $650.70.
B) $600.00.
C) $696.60.
D) $604.80.
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11
Chapter 9: Long Term Assets
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Sample Questions
Q1) Extraordinary repairs usually are recorded by making a debit to
A) a capital account.
B) Repair Expense.
C) a contra-asset account.
D) an asset account.
Q2) Which of the following is not a component of free cash flow?
A) Purchases of plant assets
B) Net income
C) Dividends
D) Net cash flows from operating activities
Q3) A revenue expenditure results in the recognition of an asset.
A)True
B)False
Q4) Depreciation refers to the periodic allocation of the cost of a tangible long-lived asset over its estimated useful life.
A)True
B)False
Q5) Extraordinary repairs are recorded with a debit to Accumulated Depreciation. A)True
B)False
Page 12
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Chapter 10: Long-Term Liabilities
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Sample Questions
Q1) When bonds payable are converted into stock,the carrying value of the bonds should be
A) credited to Retained Earnings.
B) credited to contributed capital accounts.
C) debited to Retained Earnings.
D) debited to Loss on Conversion of Bonds.
Q2) Accounting for capital leases can be thought of as similar to accounting for mortgage payments.
A)True
B)False
Q3) Term bonds are of shorter duration than serial bonds.
A)True
B)False
Q4) Suffolk Corporation issued $100,000 of 20-year,6 percent bonds at 98 on one of its semi-annual interest dates.The straight-line method of amortization is to be used.What is the total interest cost of the bonds?
A) $120,000
B) $122,000
C) $118,000
D) $117,500
Page 13
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Chapter 11: Contributed Capital
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Sample Questions
Q1) Par value
A) is established for a share of stock after it is issued.
B) is the legal capital established for a share of stock.
C) represents what a share of stock is worth.
D) represents the original selling price for a share of stock.
Q2) A liquidating dividend is usually paid when a company is going out of business or reducing its operations.
A)True
B)False
Q3) Convertible preferred stock is preferred stock that may be exchanged for
A) cash at the option of the corporation.
B) common stock at the option of the corporation.
C) cash at the option of the stockholder.
D) common stock at the option of the stockholder.
Q4) Dividends in arrears pertain to noncumulative preferred stock.
A)True
B)False
Q5) Why must a corporation have sufficient retained earnings before it may declare cash dividends?
Q6) Define outstanding stock.
Page 14
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Chapter 12: Investments
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Sample Questions
Q1) Dividends received on investments are accounted for in the same way under the cost-adjusted-to-market and the equity methods.
A)True
B)False
Q2) A controlling investment is defined as ownership of 100 percent of the stock of another company.
A)True
B)False
Q3) Blau Corporation invests $302,500 in Hills Corporation,buying 80 percent of the voting stock.Hills pays Blau $20,000 in cash dividends and earns a net income of $130,000 during 2009.On the consolidated balance sheet,the balance in the investments account representing Blau's interest in Hills will be
A) $432,500.
B) $412,500.
C) $0 .
D) $302,500.
Q4) Goodwill is the amount by which specific assets of a subsidiary are undervalued.
A)True
B)False
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Chapter 13: The Corporate Income Statement and the Statement of Stockholders Equity
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Sample Questions
Q1) A convertible bond is a potentially dilutive security.
A)True
B)False
Q2) An excess of income taxes expense over income taxes payable for a period is associated with a(n)
A) excess of taxable income over accounting income.
B) error.
C) debit to the Deferred Income Taxes account.
D) excess of accounting income over taxable income.
Q3) An analysis of the nature of non-operating items is important in judging the quality of the net income figure.
A)True
B)False
Q4) The write-off of goodwill that has been impaired is a component of income from operations.
A)True
B)False
Q5) How is it possible for a company to show a net income for a given year yet be in a deficit position at year end?
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Chapter 14: The Statement of Cash Flows
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Sample Questions
Q1) Interest paid would be included in the operating activities category on the statement of cash flows.
A)True
B)False
Q2) Indicate on the blanks below the letter of the type of activity (O = operating activity,F = financing activity,I = investing activity,N = noncash transaction)each of the following transactions represents.
_____ 1.Firm sold 8,000 shares of its own common stock for cash.
_____ 2.Sold $200,000 worth of products for cash.
_____ 3.Paid $120,000 dividend.
_____ 4.Received $1,500 in interest income.
_____ 5.Exchanged 6,000 shares of stock for 15-year bonds.
_____ 6.Paid $121,000 to the U.S.Treasury for income taxes.
Q3) A negative free cash flow indicates that the company has met all its planned cash commitments and has cash available to reduce debt or to expand.
A)True
B)False
Q4) On the lines below,provide the components for the calculation of free cash flow.
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Page 17
Chapter 15: The Changing Business Environment - a Managers Perspective
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Sample Questions
Q1) When unable to resolve an ethical conflict,the accountant should consider consulting with an attorney as to the legal obligations and rights concerning the ethical conflict.
A)True
B)False
Q2) Each of the management tools can be used individually,or parts of them can be combined to create a new operating environment.
A)True
B)False
Q3) The ethical standards for management accountants state that accountants are obligated to maintain professional competence at all times when dealing with A) people outside the company.
B) regulatory bodies.
C) the world marketplace.
D) people and resources of one's own company, outside entities, and the world marketplace.
Q4) "Hours of inspection" is an example of a nonfinancial performance measure. A)True
B)False
Page 18
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Chapter 16: Cost Concepts and Cost Allocation
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Sample Questions
Q1) Which of the following is not a product cost?
A) Depreciation of office furniture
B) Overhead
C) Direct labor
D) Direct materials
Q2) The cost of goods manufactured is added to the beginning balance of Finished Goods Inventory to obtain the total cost of goods available for sale during the period.
A)True
B)False
Q3) Costs that are identified with and traced to one product or a batch of products are called
A) overhead costs.
B) indirect costs.
C) direct costs.
D) fixed costs.
Q4) Actual overhead plus overapplied overhead equals applied overhead.
A)True
B)False
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Page 19
Chapter 17: Costing Systems- Job Order Costing
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Sample Questions
Q1) Costs for individual jobs are maintained on job order cost cards when job order costing is in use.
A)True
B)False
Q2) Unique products are produced in a continuous flow production process.
A)True
B)False
Q3) In a job order costing system,a separate job order cost card is used for each individual job.
A)True
B)False
Q4) In a service organization using a job order costing system,actual overhead will be the same as applied overhead.
A)True
B)False
Q5) The flow of costs into a Work in Process Inventory account is very similar for job order and process costing systems.
A)True
B)False
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Chapter 18: Costing Systems- Process Costing
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Sample Questions
Q1) In a process costing system,product costs are traced to individual products.
A)True
B)False
Q2) Why are equivalent units of production used in process costing?
A) To allocate overhead costs
B) To determine the value of work in process and finished goods inventories
C) To aid in determining costs per unit and costs of inventories in each process
D) To determine the cost per finished unit
Q3) During October,Department A started 320,000 units of product in a particular manufacturing process.The beginning work in process inventory was 50,000 units,and the ending inventory was 30,000 units.Direct materials are introduced at the start of processing,and beginning and ending inventories are considered to be 50 percent complete with respect to conversion costs.Department A uses the FIFO costing method. The number of units started and completed during October was
A) 350,000.
B) 360,000.
C) 290,000.
D) 320,000.
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Chapter 19: Value-Based Systems- Abm and Lean
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Q1) Why is process value analysis not part of the general ledger accounting system?
Q2) For work done during August,Printing Press Company incurred direct materials costs of $130,000 and conversion costs of $226,000.The company employs a traditional operating philosophy.At the end of August,it was determined that the Work in Process Inventory account had been assigned $1,000 of costs,and the ending balance of the Finished Goods Inventory account was $3,000.There were no beginning inventory balances.How much was cost of goods manufactured during August?
A) $356,000
B) $355,000
C) $353,000
D) $352,000
Q3) Both the number of entries and the number of ledger accounts decrease when you change to a backflush costing system.
A)True
B)False
Q4) Managers eliminate non-value-adding activities that are not essential to an organization.
A)True
B)False
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Chapter 20: Cost Behavior Analysis
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Sample Questions
Q1) The new Corina watch has an expected selling price per watch of $42,the projected variable cost per unit is $24,and estimated fixed costs per month are $31,680. The breakeven point in sales dollars is
A) $63,360.
B) $42,240.
C) $73,920.
D) $52,800.
Q2) Margin of safety is the excess of actual sales over break even sales.
A)True
B)False
Q3) Dapper Hat Makers is in the business of designing and producing specialty hats.The material used for derbies costs $4.50 per unit,and Dapper pays each of its two full-time employees $250 per week.If the employees make 50 derbies in one week,what is the fixed cost per derby? (Round to two decimal places where necessary.)
A) $4.50
B) $5.00
C) $10.00
D) $14.50
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Chapter 21: The Budgeting Process
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Q1) The direct labor budget is needed to prepare the production budget.
A)True
B)False
Q2) Once cash receipts and cash payments have been established,the cash increase or decrease is added to the period's beginning balance to arrive at a projected cash balance at period end.
A)True
B)False
Q3) The budgeting function begins with the preparation of the direct materials purchases budget.
A)True
B)False
Q4) Budgets assign resources and the responsibility to use them wisely to managers who are held accountable for their results.
A)True
B)False
Q5) Depreciation is included in the cash budget.
A)True
B)False
Q6) Describe three benefits budgeting provides to an organization's success.
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Chapter 22: Performance Management and Evaluation
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Q1) A responsibility center whose manager is held accountable for both revenues and costs and for the resulting operating income is called a profit center.
A)True
B)False
Q2) Which of the following is an example of a performance measurement?
A) Product quality
B) Number of customer complaints
C) Customer satisfaction
D) All of these choices
Q3) The logical linking of goals to measurable objectives and targets and the tying of appropriate compensation incentives to the achievement of such objectives and targets are critical to the successful coordination of goals.
A)True
B)False
Q4) What is the business purpose of the balanced scorecard,and how does it benefit an organization?
Q5) Provide three examples of something that an organization might want to measure and a performance measurement that could be utilized in each example.
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Chapter 23: Standard Costing and Variance Analysis
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Q1) Using the labor time standard of 0.5 labor hour per unit and a labor cost standard of $10 per labor hour for a 10 pound bag of chocolate and the following actual cost and usage data,compute the direct labor rate variance. \(\begin{array}{ll}
\text { Direct labor hours used } & 4,950 \text { hours } \\
\text { Total cost of direct labor } & \$ 53,460 \\
\text { Number of good units produced } & 9,000 \text { units } \end{array}\)
A) $4,500 (U)
B) $4,500 (F)
C) $3,960 (F)
D) $3,960 (U)
Q2) A variance is the difference between a standard cost and a budgeted cost.
A)True
B)False
Q3) The direct materials price standard is determined by averaging costs of current purchases.
A)True
B)False
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Chapter 24: Short Run Decision Analysis
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Q1) Taylor manufactures 12,000 units of a part used in its production to manufacture guitars.The annual production activities related to this part are as follows:
Direct materials,$24,000
Direct labor,$60,000
Variable overhead,$54,000
Fixed overhead,$84,000
Best Guitars,Inc.,has offered to sell 12,000 units of the same part to Taylor for $22 per unit.If Taylor were to accept the offer,some of the facilities presently used to manufacture the part could be rented to a third party at an annual rental of $18,000.Moreover,$4 per unit of the fixed overhead applied to the part would be totally eliminated.
In the decision to make or buy the part,what is the relevant fixed overhead?
A) $30,000
B) $54,000
C) $84,000
D) $48,000
Q2) Why is the book value of equipment irrelevant when considering the replacement of equipment?
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Chapter 25: Capital Investment Analysis
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Sample Questions
Q1) Depreciation is a unique expense because it
A) does not require a cash outlay.
B) does not affect income taxes.
C) is the same amount every accounting period.
D) has to be calculated.
Q2) The future value of a cash flow is always larger than the present value of that cash flow.
A)True
B)False
Q3) Automating the existing production process does not come under the purview of capital investment analysis.
A)True
B)False
Q4) Capital investment analysis is a decision process for the purchase of capital facilities,such as buildings and equipment.
A)True
B)False
Q5) The payback period is based on a project's net income.
A)True
B)False
28
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Chapter 26: Pricing Decisions,incltarget Costing and Transfer Pricing
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Q1) The economic approach to pricing is based on microeconomic theory.
A)True
B)False
Q2) Organizations will not invest in making a product or providing a service unless it will provide a minimum return.
A)True
B)False
Q3) Marginal revenue is the change in total revenue resulting from a one-unit change in output.
A)True
B)False
Q4) Service-oriented businesses take the same approach to pricing their "product" as product-oriented businesses.
A)True
B)False
Q5) Transfer prices force segments of a business to compete for the company's resources.
A)True B)False
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Chapter 27: Quality Management and Measurement
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Sample Questions
Q1) The following statement appears in the annual report of Ryan,Inc.,for the year ended January 1,2008: "We are confident that our ever-increasing emphasis on customer service will enhance our reputation as the finest retailer in our industry." Identify two nonfinancial measures of good quality and two nonfinancial measures of poor quality Ryan,Inc.,might apply.
Q2) When a firm changes to a JIT operating and management philosophy, A) it attempts to increase the number of suppliers it has for each item it uses to ensure a reliable flow of materials into the production process. B) it seeks out the lowest-cost bidder for supplies in order to minimize costs. C) it works more closely with fewer suppliers. D) all of these are correct.
Q3) Reducing the costs of quality and increasing overall product quality can be achieved simultaneously.
A)True
B)False
Q4) The Malcolm Baldrige Quality Award was created by the U.S.Congress.
A)True
B)False
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Chapter 28: Financial Analysis of Performance
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Sample Questions
Q1) Contrast the circumstances where horizontal analysis would be an effective analysis tool with those where common-sized analysis would be more useful.
Q2) The cash flow yield equals net income divided by net cash flows from operating activities.
A)True
B)False
Q3) How would the collection of an account receivable affect the current ratio and the quick ratio,respectively?
A) No effect on current ratio; increase in quick ratio
B) Increase in current ratio; increase in quick ratio
C) No effect on current ratio; no effect on quick ratio
D) Decrease in current ratio; decrease in quick ratio
Q4) The receivables turnover measures the relative size of the accounts receivable and the effectiveness of credit policies.
A)True B)False
Q5) Market strength is the ability to increase the wealth of stockholders. A)True
B)False
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