Accounting for Decision Making Practice Exam
Course Introduction
Accounting for Decision Making explores the essential role of accounting information in managerial decision processes within organizations. The course covers fundamental accounting concepts, techniques, and analytical tools used to interpret financial and non-financial data. Students learn how to prepare and analyze budgets, cost reports, and performance metrics to guide planning, control, and strategic decision making. By integrating case studies and real-world scenarios, this course emphasizes the practical application of accounting data to support effective management decisions and drive organizational success.
Recommended Textbook
Horngrens Accounting The Financial Chapters 12th Edition by Tracie L. Miller-Nobles
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Page 2
Chapter 1: Accounting and the Business Environment
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Sample Questions
Q1) What is the primary objective of financial reporting?
Answer: The primary objective of financial reporting is to provide information useful for making investment and lending decisions.
Q2) An owner's withdrawals affect the business's net income or net loss and are recorded as an expense.
A)True
B)False Answer: False
Q3) The guidelines for accounting information are called Generally Accepted Accounting Principles (GAAP).
A)True
B)False
Answer: True
Q4) The Public Company Accounting Oversight Board is a watchdog agency that monitors the work of independent accountants who audit public companies.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Recording Business Transactions
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Q1) Regarding T-accounts,which of the following statements is correct?
A)A T-account is a more detailed form of an account in the journal.
B)The right side of a T-account is a debit for asset accounts and a credit for equity accounts.
C)Debits are posted on the right side of the vertical line.
D)A T-account is a summary device with credits posted on the right side of the vertical line.
Answer: D
Q2) A liability account is increased by a debit.
A)True
B)False
Answer: False
Q3) A business collects cash from a customer for services that were performed one month earlier.Which of the following accounts is credited?
A)Cash
B)Accounts Receivable
C)Service Revenue
D)Accounts Payable
Answer: B
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Page 4
Chapter 3: The Adjusting Process
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Sample Questions
Q1) The asset account,Office Supplies,had a beginning balance of $3,700.During the accounting period,office supplies were purchased,on account,for $3,500.Supplies Expense for the accounting period is $4,100.What is the ending balance of Office Supplies?
A)$7,200
B)$3,100
C)$4,100
D)$4,300
Answer: B
Q2) If a company fails to make an adjusting entry to record accrued expenses,the liabilities and net income will be overstated.
A)True
B)False Answer: False
Q3) Deferred Revenue is a liability created when a business collects cash from customers in advance of completing a service or delivering a product.
A)True
B)False Answer: True
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Page 5
Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Which of the following accounts would appear in the balance sheet credit column of the worksheet?
A)Prepaid Insurance
B)Buildings
C)Unearned Revenue
D)Service Revenue
Q2) Adjusting journal entries are prepared ________.
A)after preparing the adjusted trial balance
B)after preparing the unadjusted trial balance
C)after posting the closing entries
D)after preparing the financial statements
Q3) Which of the following statements is TRUE of the worksheet?
A)The worksheet is a tool that takes the place of financial statement preparation.
B)The worksheet is a document used to summarize data to prepare financial statements.
C)The worksheet is a financial statement issued to the public to communicate the financial results of a company.
D)The worksheet is a type of journal.
Q4) List the steps of the accounting cycle that take place at the end of the period.
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Chapter 5: Merchandising Operations
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Sample Questions
Q1) On the balance sheet,Merchandise Inventory is listed above Accounts Receivable.
A)True
B)False
Q2) After making a sale,a seller may have customers that return goods.The seller uses the perpetual inventory system.This requires the seller to ________.
A)use historical data to record sales revenue in the amount that is expected to be received
B)record two adjusting entries to account for the estimated returns
C)reduce sales and cost of goods sold for the period
D)All of the statements are correct.
Q3) The purchase discount amount is calculated on the amount of the invoice minus the returns and allowances.
A)True
B)False
Q4) Cafeteria Supply returned 2 cases of defective warming trays to the vendor for an amount of $600.Prepare the journal entry for this transaction.Cafeteria Supply uses a perpetual inventory system and purchased the cases on account.Omit explanation.
Q5) What does the gross profit percentage measure? How is it computed?
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Chapter 6: Merchandise Inventory
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Sample Questions
Q1) Which of the following inventory costing methods yields the lowest cost of goods sold during a period of rising inventory costs?
A)specific identification
B)weighted-average
C)last-in,first-out
D)first-in,first-out
Q2) 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 net income.
A)True
B)False
Q3) The consistency principle states that a business should use the same accounting methods and procedures from period to period.
A)True
B)False
Q4) An inventory error cancels out after two periods.
A)True
B)False
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8
Chapter 7: Accounting Information Systems
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Sample Questions
Q1) The accounts payable subsidiary ledger ________.
A)does not indicate the amount owed to each vendor
B)shows only a single total for the amount owed on account
C)lists vendors in alphabetical order,along with amounts paid to the vendors and the remaining amounts owed to them
D)has a format that is entirely different from an accounts receivable subsidiary ledger
Q2) Rockville Company makes a $1,200 purchase of merchandise inventory on account.This transaction will be recorded in the ________.
A)cash payments journal
B)sales journal
C)cash receipts journal
D)purchases journal
Q3) Sales on account are recorded in a cash receipts journal.
A)True
B)False
Q4) State the purpose of a subsidiary ledger? What is included in the accounts receivable subsidiary ledger?
Q5) List and describe two features of an effective accounting information system.
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Chapter 8: Internal Control and Cash
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Sample Questions
Q1) Which of the following is a benefit provided by internal control?
A)ensuring timely collection of accounts receivables
B)ensuring that collusion will never happen
C)ensuring that a business is profitable
D)promoting operational efficiency
Q2) The bank statement shows the beginning and ending balances of cash in a bank account,cash receipts and payments,and the names of all individuals who are authorized to sign checks.
A)True
B)False
Q3) Which of the following statements is TRUE of the Sarbanes-Oxley Act?
A)Accounting firms are allowed to provide both auditing services and a full range of consulting services to their public company clients.
B)Those who commit securities fraud must be sentenced to 10 years in prison.
C)All private and foreign companies must issue an internal control report evaluated by an outside auditor.
D)The Public Company Accounting Oversight Board oversees the work of auditors of public companies.
Q4) Discuss the roles of the internal auditors and the external auditors.
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Chapter 9: Receivables
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Sample Questions
Q1) The interest period extends from the original date of the note to the maturity date.
A)True
B)False
Q2) On June 16,2018,Evergreen Company wrote off the $200 receivable from customer M.Simmons.On October 14,2018,Evergreen unexpectedly receives $200 cash from M.Simmons.How should Evergreen record the $200 payment from M.Simmons? Evergreen uses the allowance method.
A)Debit Cash and credit Bad Debts Expense
B)Debit Accounts Receivable - M.Simmons and credit Allowance for Bad Debts;debit
Cash and credit Accounts Receivable - M.Simmons
C)Debit Accounts Receivable - M.Simmons and credit Bad Debts Expense;debit Cash and credit Accounts Receivable - M.Simmons
D)Debit Cash and credit Allowance for Bad Debts
Q3) 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) On January 1,2019,Ennis Company purchased a patent for $200,000 cash.Although the patent gives legal protection for 20 years,the patent is expected to be used for only 10 years.The patent has no residual value.Journalize the amortization expense for 2019.Assume straight-line amortization.Omit explanation.
Q2) Which of the following is an intangible asset?
A)plant and machinery
B)goodwill
C)building
D)land
Q3) Provide definitions for the following terms.
1.Capitalize
2.Revenue Expenditure
3.Depreciation
Q4) Depreciation means that the business sets aside cash to replace an asset when it is used up.
A)True
B)False
Q5) Capitalizing a cost involves crediting the asset account.
A)True
B)False
12
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Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) Which of the following deductions is paid by both the employer and employee?
A)federal income taxes
B)federal unemployment taxes
C)FICA taxes
D)SUTA taxes
Q2) Modern Age Company made total cash sales in February of $666,000,which are subject to 7.5% sales tax.Prepare the summary entry to record the transaction.Omit explanation.
Q3) Which of the following is the proper treatment for a contingency that is probable but the exact amount of which is not known? The amount can be estimated.
A)The liability should be doubled following conservatism.
B)The liability should be estimated and recorded.
C)The liability should be ignored.
D)The liability should be reported in the notes to the financial statements.
Q4) Medicare taxes are a required column in a payroll register.
A)True
B)False
Q5) If the likelihood of a future event is probable and the amount of the expense can be estimated,how should the company report the contingency?
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Chapter 12: Partnerships
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Questions
Q1) Issac and Karl are partners.Issac has a capital balance of $25,000 and Karl has a capital balance of $20,000.Bill invested $15,000 to acquire an ownership interest of 30%.How does this transaction affect the balance sheet items?
A)Asset increases and the equity remains unchanged.
B)Assets increase and the equity decreases.
C)Both assets and equity increase.
D)Assets increase,liabilities decrease,and the equity remain unchanged.
Q2) Which of the following is specified in the articles of partnership?
A)procedures for withdrawal of assets by the partners
B)procedures for distribution of dividends
C)methods for valuation of the assets
D)selection of an appropriate depreciation method
Q3) The statement of partners' equity shows the changes in each partner's capital account for a specific period of time.
A)True
B)False
Q4) If elected,an S corporation pays no corporate income tax.
A)True
B)False
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Chapter 13: Corporations
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Q1) Home Gallery,Inc.had beginning retained earnings of $125,000 on January 1,2019.During the year,Home Gallery declared and paid $40,000 of cash dividends and earned $55,000 of net income.Prepare a statement of retained earnings for Home Gallery,Inc.for the year ending December 31,2019.
Q2) Paid-in capital is externally generated capital and results from transactions with outsiders.
A)True
B)False
Q3) The statement of stockholders' equity reports the number of shares and any changes during the year in preferred,common,and treasury stock.
A)True
B)False
Q4) Dividends can be paid in the form of cash,stock,or other property. A)True
B)False
Q5) Small stock dividends are accounted for at the stock's par value.
A)True
B)False
Q6) List the four basic rights of stockholders.
Page 15
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Chapter 14: Long-Term Liabilities
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Q1) If a company is financing more assets with debt than with equity,the ________.
A)debt to equity ratio will be more than 1
B)debt to equity ratio will be between 0 to 1
C)debt to equity ratio will be equal to 1
D)debt to equity ratio will be negative
Q2) List three disadvantages of borrowing.
Q3) Which of the following describes a serial bond?
A)a bond that matures in installments at regular intervals
B)a bond that gives the bondholder a claim for specific assets
C)a bond that matures at one specified time
D)a bond that is not backed by specific assets
Q4) Debentures are bonds that mature in installments at regular intervals.
A)True
B)False
Q5) An alternative to calling the bonds is to purchase any available bonds in the open market at their current market price.
A)True
B)False
Q6) What is the only difference between present value and future value?
Q7) What is the difference between simple interest and compound interest?
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Chapter 15: Investments
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Q1) The unrealized holding gains and losses on available-for-sale debt investments are recorded as an adjustment to the Unrealized Holding Gain-Available-for-Sale account or Unrealized Holding Loss-Available-for-Sale account.
A)True
B)False
Q2) Leonard Technologies invests $68,000 to acquire $68,000 face value,10%,five-year corporate bonds on December 31,2014.The bonds will mature on December 31,2019.The bonds pay interest semiannually on December 31 and June 30 every year until maturity.Assume Leonard Technologies uses a calendar year.Based on the information provided,which of the following will be included in the journal entry for the transaction on December 31,2018?
A)a credit to Interest Revenue for $6800
B)a debit to Interest Revenue for $6800
C)a credit to Interest Revenue for $3400
D)a debit to Interest Revenue for $3400
Q3) An equity security does not represent an ownership interest in a corporation,although it pays dividends.
A)True
B)False
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Page 17
Chapter 16: The Statement of Cash Flows
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Q1) Free cash flow is calculated by adding cash payments planned for investments in long-term assets and cash dividends to the amount of net cash provided by operating activities.
A)True
B)False
Q2) When preparing the statement of cash flows using the indirect method,depreciation expense is subtracted from net income under operating activities.
A)True
B)False
Q3) The third section presented on the statement of cash flows is the non-cash operating activities section.
A)True
B)False
Q4) Cash borrowed on a mortgage note is a(n)________ activity on the statement of cash flows.
A)operating
B)investing
C)financing
D)non-cash investing and financing
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Chapter 17: Financial Statement Analysis
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Sample Questions
Q1) When performing vertical analysis of a balance sheet,the base amount is
A)total assets
B)total cash and cash equivalents
C)net income
D)gross profit
Q2) Online financial databases provide data on companies which allows investors to compare the companies' future earnings.
A)True
B)False
Q3) Days' sales in receivables measures the return on average receivables.
A)True
B)False
Q4) Which of the following is used to determine how the sales revenue of a company has changed from one year to the next?
A)vertical analysis of the balance sheet
B)horizontal analysis of the income statement
C)horizontal analysis of the balance sheet
D)vertical analysis of the income statement
Q5) What is an annual report? Briefly describe the key parts of the annual report.
Page 19
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