Accounting for Decision Making Pre-Test Questions
Course Introduction
Accounting for Decision Making focuses on the role of accounting information in organizational planning, control, and decision processes. The course introduces key concepts and tools such as cost behavior analysis, budgeting, relevant costing, performance evaluation, and financial statement interpretation. Students learn how to use accounting data to make informed managerial decisions, allocate resources efficiently, and evaluate business alternatives in both short-term and long-term scenarios. Emphasis is placed on applying quantitative and qualitative analysis to real-world business problems, enabling future managers to contribute effectively to their organizations financial success.
Recommended Textbook Fundamentals of Financial Accounting 5th Canadian Edition by Fred Phillips
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Chapter 1: Business Decisions and Financial Accounting
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Q1) According to the cost principle of accounting,assets are initially reported on the balance sheet based on their original cost to the company.
A)True
B)False
Answer: True
Q2) When a company goes bankrupt,assets are divided equally between creditors and investors.
A)True
B)False
Answer: False
Q3) An entity that is holding assets for another party and has legal authority and duty to make decisions regarding financial matters concerning that party is:
A)fiduciary.
B)accountant.
C)attorney.
D)manager.
Answer: A
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Page 3
Chapter 2: The Balance Sheet
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Q1) Facebook issues new stock worth $40 million for cash.This would not affect the shareholders' equity on the balance sheet because as new shares are sold the value of existing shares will decline by the same amount.
A)True
B)False
Answer: False
Q2) In computing the statement of financial position,some data was misplaced and they are attempting to reconstruct the missing data from that which is available.You know that total assets for the current year are $33,000.Non-current liabilities are $8,000 and Shareholders equity is $23,000.The current ratio is 2.50.Find the values for current assets,fixed assets and current liabilities.
Answer: $5000,$28000,$2000,respectively.33000 = CL + 8,000 + 23,000,therefore CL = 2,000.Use the CL value in the current ratio to get CA.Current Ratio = 2.50 = CA/2,000,therefore,CA = 5,000.Subtract the CA value from total assets to get fixed assets; 33,000 - 5,000 = 28,000.
Q3) Any item on a balance sheet labelled payable is a liability of that company.
A)True
B)False
Answer: True
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Page 4
Chapter 3: The Income Statement
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Sample Questions
Q1) A customer orders a heavy duty machinery from Yukon Inc in October.Yukon manufactures it in November and ships it along with their bill in December and receives payment in January.If Yukon is to recognize revenue in January,they are following:
A)Credit basis accounting
B)Accrual-basis accounting
C)Cash basis accounting
D)Debit basis accounting
Answer: C
Q2) Company's net income is the sole determinant of its value for the period the net income is generated.
A)True
B)False
Answer: False
Q3) Which of the following is most likely to be reported as an accrued liability?
A)Supplies.
B)Wages Expense.
C)Prepaid Rent.
D)Property and Equipment.
Answer: B
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Page 5
Chapter 4: Adjustments, financial Statements, and Financial Results
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Q1) Revenue and expense accounts are permanent accounts because they always appear on the income statement.
A)True
B)False
Q2) An accrual adjustment that increases an asset will include an increase in an expense.
A)True
B)False
Q3) In general,adjusting journal entries improve the usefulness of the financial reports.
A)True
B)False
Q4) Which of the following statements is true?
A)Retained earnings is a permanent account,while income statement accounts are temporary.
B)Retained earnings and income statement accounts are all temporary accounts.
C)Retained earnings and income statement accounts are all permanent accounts.
D)Retained earnings is a temporary account,while income statement accounts are permanent accounts.
Page 6
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Chapter 5: Fraud, internal Control, and Cash
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Q1) Internal controls include the policies and procedures a company implements to protect against theft of assets,to promote efficiency,and to ensure compliance with laws and regulations.
A)True
B)False
Q2) Your company makes a bank deposit of $857 in its chequing account.Which of the following describes how this transaction should be accounted for?
A)You add $857 to your recorded cash balance and the bank deducts $857 from your chequing account balance.
B)You deduct $857 from your recorded cash balance and the bank deducts $857 from your chequing account balance.
C)You add $857 to your recorded cash balance and the bank adds $857 to your chequing account balance.
D)You deduct $857 from your recorded cash balance and the bank adds $857 to your chequing account balance.
Q3) NSF cheques are recorded as accounts payable.
A)True
B)False
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Chapter 6: Merchandising Operations and the Multi-Step
Income Statement
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Q1) The following merchandise transactions occurred during December for two different companies: Rippen and Burnen.Both companies use a perpetual inventory system.
On December 3,Rippen Corporation sold merchandise on account to Burnen Corp.for $480,000,terms 2/10,n/30.This merchandise originally cost Rippen $320,000.
On December 8,Burnen Corp.returned merchandise to Rippen Corporation for a credit of $30,000.Rippen returned this merchandise to inventory at its original cost of $20,000.
December 12,Burnen Corp.paid Rippen Corporation for the amount owed.
Required:
a.Prepare the journal entries to record these transactions on the books of Rippen Corporation.
b.Prepare the journal entries to record these transactions on the books of Burnen Corp.
Q2) A rising gross profit percentage indicates management's inability to control production and inventory costs.
A)True
B)False
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Page 8
Chapter 7: Inventory and Cost of Goods Sold
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Q1) For a company making cheese,Cured cheese that is waiting to be shipped to retailers would be included in which of the following?
A)Raw materials inventory.
B)Work in progress inventory.
C)Finished goods inventory.
D)All of the answers are acceptable.
Q2) An auto manufacturer's inventory would not include:
A)tires,batteries,glass,paint,headlamp bulbs,electric wiring,and welding compounds.
B)incomplete cars that are still being processed.
C)finished cars ready to be shipped to dealers.
D)cars sold to and held by dealers.
Q3) For a manufacturer,inventory turnover refers to how many times:
A)during the period the company replaces the raw material inventory.
B)the company buys and sells its inventory of goods.
C)the company produces and delivers its inventory of goods to customers.
D)All of the answers relate to inventory turnover.
Q4) Goods available for sale minus the ending inventory equals cost of goods sold.
A)True
B)False
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Chapter 8: Receivables, bad Debt Expense, and Interest
Revenue
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Q1) Adventure Company uses the aging of accounts receivable method to estimate bad debt expense.The balance of each account receivable is aged on the basis of three categories as follows: (1)1-30 days old,(2)30-90 days old,and (3)more than 90 days old.Experience has shown that for each age group,the average loss rate on the amount of the uncollectible receivable due is (1)1%,(2)15%,and (3)40%,respectively.At December 31,2017,the unadjusted balance in the Allowance for Doubtful Accounts was $100 (credit),and the total amounts receivable in each category were: (1)1-30 days old,$65,000,(2)30-90 days old,$10,000,and (3)more than 90 days old,$4,000.Calculate the balance that should be reported in the Allowance for Doubtful Accounts at December 31,2017,and prepare the appropriate bad debt expense adjusting entry at December 31,2017.
Q2) A non-GAAP alternative to the allowance method of accounting for uncollectible accounts refers to the A)direct write-off method. B)allowance method.
C)percentage of sales method. D)aging of accounts method.
Q3) The amount of the principal of a notes receivable depends on the maturity date. A)True B)False
Page 10
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Chapter 9: Long-Lived Tangible and Intangible Assets
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Q1) A company buys a piece of equipment for $48,000.The equipment has a useful life of ten years.Using the double-declining-balance method,the company's depreciation expense in the first year would be:
A)$9,600.
B)$12,000.
C)$4,800.
D)$24,000.
Q2) Decorama Corp.bought a delivery van for $65,000 with a estimated residual value of $6,000.The van is expected to be used for the next 10 years.The company estimates it will be used to drive a total of 225,000,000 km (30,000 km in the first year,25,000 in the second,third and fourth years and 20,000 in the next six years. What would be the amount of depreciation expense in year 2 using the straight line depreciation method?
A)$6,500.00
B)$5,900.00
C)$10,400.00
D)$6,555.55
Q3) Capitalizing costs refers to the process of converting assets to expenses.
A)True B)False
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Page 11
Chapter 10: Liabilities
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Q1) Brief Respite,Inc.,sold underwear made from a fabric that gave many of its customers a serious rash.The customers are suing the company in a class action suit and Brief Respite's attorneys think it is probable that the case will cost the company $2 million,although the verdict is not yet in.The company should:
A)not include this information in its annual report.
B)record a liability and a gain for $2 million.
C)only explain the situation in the notes to the financial statements.
D)record a liability and a loss for $2 million.
Q2) A high times interest earned ratio indicates an extra margin of protection if the company's profitability declines in the future.
A)True
B)False
Q3) On maturity,the carrying value of a bond will be equal to the face value. A)True
B)False
Q4) Determining bond prices is not a necessary step in accounting for a bond issue. A)True
B)False
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Page 12
Chapter 11: Shareholders Equity
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Q1) The combined effect of the declaration and payment of a cash dividend on a company's financial statements is to:
A)decrease total liabilities and decrease shareholders' equity.
B)increase total expenses and increase total liabilities.
C)increase total assets and increase shareholders' equity.
D)decrease total assets and decrease shareholders' equity.
Q2) Fonthouse Corporation issues 10,000 shares of no-par preferred stock for cash at $60 per share. The effects of the transaction described will be reported on the balance sheet in the:
A)liabilities section.
B)retained earnings account.
C)preferred shares account.
D)common shares account.
Q3) The declaration date for a dividend is the date on which the company:
A)debits Dividends Declared and credits Dividends Payable for the amount of the dividend.
B)debits Dividend Expense and credits Cash for the dividend amount.
C)debits Dividends Payable and credits Cash for the dividend amount.
D)establishes who will receive the dividend payment.
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Page 13
Chapter 12: Statement of Cash Flows
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Q1) Net cash flows provided by operating activities are:
A)greater under the direct,than indirect method.
B)greater under the indirect,than direct method.
C)the same under the direct and indirect method.
D)all of the choices are correct.
Q2) Which of the following statements is true regarding cash flows from financing activities?
A)When companies borrow,cash outflows for financing activities have occurred.
B)When companies receive dividends,cash inflows from financing activities have occurred.
C)When companies repurchase their own stock,cash outflows for financing activities have occurred.
D)When companies pay dividends,cash inflows from financing activities have occurred.
Q3) What is the first step in identifying cash flows from operations when the indirect method is used?
A)Find net income from the balance sheet.
B)Calculate the net change in the cash account.
C)Add the change in accounts receivable to sales revenue.
D)Identify the balance sheet accounts that relate to operating activities.
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Page 14
Chapter 13: Measuring and Evaluating Financial Performance
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Q1) Solvency ratio data are primarily concerned with the ability of a company to:
A)produce profits.
B)handle its debt.
C)manage its cash flow.
D)provide income for shareholders.
Q2) According to the above Table.Calculate the company's fixed asset turnover ratio for the current year.
A)2.00
B)1.80
C)1.51
D)0.50
Q3) ASPE and IFRS require that items be recorded only after an exchange between the company and another party
A)True
B)False
Q4) The return on equity ratio compares the amount of net income to shareholders' equity:
A)True
B)False
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