Accounting for Decision Making Review Questions
Course Introduction
Accounting for Decision Making introduces students to the fundamental principles and practices of accounting with an emphasis on how financial information supports management in planning, controlling, and decision-making processes. The course covers the analysis and interpretation of financial statements, budgeting, cost-volume-profit analysis, and performance measurement tools to provide a comprehensive understanding of how accounting data informs strategic business decisions. Through real-world examples and case studies, students learn to apply accounting concepts to evaluate options, support managerial decisions, and enhance organizational effectiveness.
Recommended Textbook
Intermediate Accounting 1st Edition by Elizabeth
A. Gordon
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Page 2
Chapter 1: The Financial Reporting Environment
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Sample Questions
Q1) Financial accounting standards influence the behavior of managers and other internal users.
A)True
B)False Answer: True
Q2) Fair value measurements are a long-standing tradition in U.S.GAAP.
A)True
B)False Answer: False
Q3) The FASB Accounting Standards Codification is the one and only single source of GAAP in the United States.
A)True
B)False Answer: True
Q4) The Security Exchange Commission (SEC)regulates financial reporting for publicly traded companies.
A)True
B)False Answer: True
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Chapter 2: Financial Reporting Theory
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Sample Questions
Q1) The most important characteristic of accounting information is whether it is
A)free from error
B)material
C)relevant
D)useful
Answer: A
Q2) ________ accounting measures noncash transactions.
A)Accrual
B)Cash-basis
C)Cloud
D)Historic
Answer: A
Q3) According to IFRS,there are two types of capital maintenance adjustments: financial and physical.
A)True
B)False
Answer: True
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Chapter 3: Judgment and Applied Financial Accounting Research
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Sample Questions
Q1) Airlines Insider is a well-respected publication for the airline industry.The publication prescribes a certain accounting treatment which differs from what is indicated in the Codification.How should this be handled?
A)Follow the treatment discussed in Airlines Insider.
B)Follow the treatment discussed in the Codification.
C)Choose whichever treatment is most conservative.
D)Create a blend of the two treatments.
Answer: B
Q2) In ASC 450-20-35-2,20 represents the ________.
A)topic
B)section
C)subtopic
D)subsection
Answer: C
Q3) The first step in the accounting research process is to identify the issue.
A)True
B)False
Answer: False
Page 5
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Chapter 4: Review of the Accounting Cycle
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Sample Questions
Q1) List the steps in the accounting cycle in the correct order.
Q2) The statement of cash flows is prepared after all other financial statements have been prepared.
A)True
B)False
Q3) Accruals occur when a company receives or pays cash before recognizing the revenue or expense in the financial statements.
A)True
B)False
Q4) The normal balance of an account is the side on which an increase in the account balance is recorded.
A)True
B)False
Q5) Adjusting journal entries are made to ensure that all revenues and/or expenses are recognized in the period in which they are incurred.
A)True
B)False
Q6) List the sequence in which financial statements are prepared from the adjusted trial balance.
Page 6
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Chapter 5: Statements of Net Income and Comprehensive
Net Income
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Q1) Which of the following income statement elements is an economic inflow that occurs from primary operations?
A)revenue
B)comprehensive income
C)gain
D)net income
Q2) The four income statement elements are gains,losses,revenues,and expenses.
A)True
B)False
Q3) What is the amount of gross profit for Cambridge Company?
A)$9,369
B)$5,731
C)$5,494
D)$5,108
Q4) Which of the following is not an account type reported in the statement of stockholders' equity?
A)accumulated other comprehensive income
B)controlling interest
C)treasury stock
D)contributed capital
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Chapter 6: Statements of Financial Position and Cash Flows and
the Annual Report
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Sample Questions
Q1) Which of the following is a not a component of shareholders' equity?
A)Common Stock
B)Other Comprehensive Income
C)Additional Paid in Capital
D)Treasury Stock
Q2) The relevance of the balance sheet is limited because many assets are recorded at historical costs.
A)True
B)False
Q3) The report format of the balance sheet lists assets on the left side and liabilities and stockholders' equity on the right side of the statement.
A)True
B)False
Q4) When preparing the operating activities section of the statement of cash flows under the indirect method,depreciation expense is subtracted from net income.
A)True
B)False
Q5) What are three limitations associated with the balance sheet?
Page 8
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Chapter 7: Accounting and the Time Value of Money
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Sample Questions
Q1) Which of the following is false?
A)To calculate the present value of a deferred annuity,determine the present value of an ordinary annuity of 1 for the entire period and subtract the present value of the payments which were not received during the deferral period.
B)The future value of a deferred annuity is greater than the future value of an annuity not deferred.
C)If the first payment is received at the end of the fifth period,it means the ordinary annuity is deferred for five periods.
D)The present value of a deferred annuity is greater than the present value of an annuity not deferred.
Q2) You are provided with two time-value-of-money tables.One table provides factors for the present value of an ordinary annuity and the other provides factors for the present value of an annuity due.How can you tell which table is which type?
Q3) What is a deferred annuity?
Q4) You are provided with two time-value-of-money tables.One is a present value table and one is a future value table.How can you tell which table is which type?
Q5) List the variables in a single-sum problem.
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Page 9
Chapter 8: Revenue Recognition
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Sample Questions
Q1) A contract with the customer may be written,oral,or implied by ________.
A)one party
B)two or more parties
C)an attorney
D)law
Q2) Refer to Agee Corporation.Using the most-likely-amount approach,record the receipt of the upfront fee and the first month's revenue.
Q3) If the standalone price of each performance obligation is known,then the estimate of the selling price should maximize the use of observable inputs.
A)True
B)False
Q4) The first step in the revenue recognition process is to determine the transaction price.
A)True
B)False
Q5) Refer to Agee Corporation.Using the expected-value approach the transaction price would be
Q6) Refer to Kramer Iron Works.Allocate the transaction price using the standalone approach.
Page 10
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Chapter 9: OL: Revenue Recognition
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Sample Questions
Q1) GAAP and IFRS both allow a company to report service revenue using the percentage of completion method.
A)True
B)False
Q2) Refer to Fare Jewelry.How much revenue should Fare recognize for 2017 on this transaction?
A)$0
B)$125,000
C)$200,000
D)$500,000
Q3) Journal entries for the percentage-of-completion method are only made at the completion of the project.
A)True
B)False
Q4) Refer to Craft Construction.Assume Craft uses the percentage-of-completion method for revenue recognition.Compute the amount of gross profit for 2016 and 2017.
Q5) Refer to Craft Construction.Assume that Craft uses the zero-gross-profit approach for revenue recognition.Make the appropriate journal entries for 2016 and 2017 for Craft Company.
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Chapter 10: Short-Term Operating Assets: Cash and Receivables
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Sample Questions
Q1) Pledged receivables are collateral for a financing arrangement.
A)True
B)False
Q2) Which ratio indicates the effectiveness of a company's credit extension policy?
A)inventory turnover
B)accounts payable turnover
C)days sales outstanding
D)days inventory on hand
Q3) Under the allowance method,the write-off of an uncollectible account ________.
A)has no effect on the allowance for uncollectible accounts
B)has no effect on net income
C)increases expenses
D)decreases total assets
Q4) What is the company's accounts receivable turnover ratio?
A)50.0
B)24.3
C)15.0
D)6)0
Page 12
Q5) How does a note receivable differ from an account receivable?
Q6) Why are trade discounts not recorded in the accounts like sales discounts?
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Chapter 11: Short-Term Operating Assets: Inventory
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Sample Questions
Q1) The Peggy Ahlers Company uses the perpetual inventory system and the FIFO method.At the end of the fiscal year,December 31,2015,the company conducted a physical count of the inventory on hand at all warehouses and stores.The FIFO cost of the physical count is $1,005,400.According to the records,ending inventory using FIFO is $1,122,000.Which journal entry is required at December 31,2015?
A)No journal entry is required.
B)Debit Inventory $116,600 and credit Allowance to Reduce Inventory $116,600.
C)Debit Cost of Goods Sold $116,600 and credit Allowance to Reduce Inventory $116,600.
D)Debit Loss on Inventory Shortage $116,600 and credit Inventory $116,600.
Q2) The income taxes saved by using LIFO instead of FIFO are equal to ________.
A)the tax rate times the change in the ending inventory from last year to the current year
B)the tax rate times the cost to retail ratio
C)the tax rate times the LIFO reserve
D)the tax rate times the change in the LIFO reserve
Q3) What is a LIFO liquidation? In a period of rising costs,why is a LIFO liquidation feared?
Q4) What are the advantages of using of dollar-value LIFO
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Page 14
Chapter 12: Long-Term Operating Assets: Acquisition, cost
Allocation, and Derecognition
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Sample Questions
Q1) Which of the following is a characteristic of intangible assets?
A)held for resale
B)long-lived
C)monetary asset
D)physical existence
Q2) Briefly explain the half-year convention for recognizing depreciation.
Q3) IFRS permits the use of full-cost accounting to allocate a proportionate share of indirect costs to a constructed asset.
A)True
B)False
Q4) During 2016,Dosekis Co.incurred average accumulated expenditures of $400,000 during construction of assets that qualified for capitalization of interest.The only debt outstanding during 2016 was a $500,000,10%,5-year note payable dated January 1,2013.What is the amount of interest that should be capitalized by Dosekis during 2016?
A)$10,000
B)$40,000
C)$50,000
D)$80,000
Q5) What is meant by a bargain purchase and how is it recorded?
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Chapter 13: Long-Term Operating Assets: Departures From
Historical Cost
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Q1) Which of the following statements is true about assessing recoverability of an asset?
A)If the sum of the undiscounted cash flows exceeds the carrying value of the asset,then the asset is impaired.
B)If the sum of the discounted cash flows exceeds the carrying value of the asset,then the asset is impaired.
C)If the sum of the undiscounted cash flows exceeds the carrying value of the asset,then the asset is not impaired.
D)If the sum of the discounted cash flows exceeds the carrying value of the asset,then the asset is not impaired.
Q2) In 2009,Cilla Company acquired production machinery at a cost of $410,000,which now has a accumulated depreciation of $240,000.The undiscounted cash flows from use of the machinery is $190,000 and it's fair value is $145,000.What amount should Cilla recognize as a loss on impairment?
A)$20,000
B)$35,000
C)$70,000
D)-0-
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Page 16
Chapter 14: Operating Liabilities and Contingencies
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Sample Questions
Q1) The obligation for compensated absences should be valued at known future wage rates.
A)True
B)False
Q2) Define contingency.What exactly is the company uncertain about?
Q3) Operating liabilities are short-term obligations.
A)True
B)False
Q4) The income tax payable that a company reports on its balance sheet represents the amount that is owed to the governmental units.
A)True
B)False
Q5) Contingent gains are generally not recognized in the financial statements due to conservatism.
A)True
B)False
Q6) By recording a contingent gain,a company recognizes revenue when it is realized.
A)True
B)False
Q7) What are compensated absences? How does a company account for them?
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Chapter 15: OL: Operating Liabilities and Contingencies
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Q1) Accounting for product warranty costs under an base warranty ________.
A)is required for income tax purposes
B)charges an expense account when the seller performs in compliance with the warranty
C)is frequently justified on the basis of expediency when warranty costs are immaterial
D)should be used whenever the warranty is an integral and inseparable part of the sale
Q2) In an extended warranty,warranty revenue is ________.
A)not recognized
B)recognized equally over the warranty period
C)recognized only in the last year of the warranty period
D)recognized in the year of sale
Q3) Warranties that cover longer time periods are more likely to be base warranties.
A)True
B)False
Q4) An assurance-type warranty is also referred to as an extended warranty. A)True
B)False
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18
Chapter 16: Financing Liabilities
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Q1) When bonds issued under GAAP contain a beneficial conversion option are converted,the paid-in capital - beneficial conversion feature ________.
A)remains unchanged
B)is recorded as a loss
C)is appropriately removed
D)is added in full to the paid-in capital in excess of par - common
Q2) The incremental method allocates proceeds from the issuance of bonds with warrants between debt and equity based on relative separate fair values of the bonds and warrants.
A)True
B)False
Q3) The Hudson Company borrowed $250,000 to purchase machinery and agreed to pay 4% interest for six years on an installment note.Each note payment is $47,690.How much interest is Hudson paying over the life of the loan?
A)$23,860
B)$36,140
C)$40,000
D)$60,000
Q4) Discuss what causes bonds to sell at par,a premium,or a discount.
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Chapter 17: Accounting for Stockholders Equity
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Q1) TNT Corporation is authorized to issue 75,000 shares of $1 par value common stock.Prepare the journal entries for the following transactions (omit explanations):
a.Issued 50,000 shares at $25 per share.
b.Issued 500 shares in exchange for consulting services; the estimated fair value is $20 per share.
c.Issued 7,000 shares at $30 per share,paying an underwriter $800 in stock issuance costs.
Q2) ________ preferred shares contain a provision requiring that preferred shareholders share ratably in distributions with common shareholders.
A)Cumulative
B)Participating
C)Convertible
D)Redeemable
Q3) Convertible preferred shares are often accounted for as a liability under both GAAP and IFRS.
A)True
B)False
Q4) Why would a company issue a stock split?
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Chapter 18: Investing Assets
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Q1) For securities classified as trading,what do companies disclose in the notes to the financial statements?
Q2) Companies generally provide both qualitative and quantitative disclosures of investing assets in the annual report.
A)True
B)False
Q3) Packer Publications purchased 40,000 of the outstanding 100,000 shares of Bear Homes.How should Packer account for this investment?
A)Packer should account for this investment using the equity method,as Packer has significant influence over the investee.
B)Packer has control over Bear,so it must consolidate all financial statements.
C)Packer should classify this investment as an Available-for-Sale Equity Investment.
D)Packer should classify this investment as a Trading Equity Investment.
Q4) Equity securities are an investment in the common or preferred shares of another company.
A)True
B)False
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21
Chapter 19: Accounting for Income Taxes
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Q1) Under U.S.GAAP,companies generally use a balance-sheet approach to account for temporary differences between book and tax treatment of transactions.
A)True
B)False
Q2) Netting deferred tax assets and liabilities is permitted as long as the right to offset exists.
A)True
B)False
Q3) ________ differences between book income and taxable income result in an effective tax rate that differs from the statutory tax rate.
A)Temporary
B)Permanent
C)Short-term
D)Long-term
Q4) The adjustment for a change in tax rates is treated as a change in accounting estimate.
A)True
B)False
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Page 22
Chapter 20: Accounting for Employee Compensation and Benefits
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Questions
Q1) At the beginning of the current year,Bridges Corporation has a net gain-Accumulated Other Comprehensive Net Income of $80,000,000.The Projected Benefit Obligation and the plan assets are $500,000,000 and $650,000,000 respectively.The average remaining service period for the employees to receive benefits is 15 years.What is the amount of amortization to pension expense for the year?
A)$1,000,000
B)$1,500,000
C)$2,000,000
D)$8,000,000
Q2) List and explain the three methods used to measure a company's pension obligation to its employees.
Q3) When pension plan assets exceed pension plan obligations,the pension plan is overfunded.
A)True
B)False
Q4) Under a defined contribution pension plan,the contribution is fixed but benefits can vary.
A)True
B)False
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Chapter 21: Earnings Per Share
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Q1) Greenwell Coffee Company began operations on the first day of the year.On that day they issued 10,000 shares.On March 1 they issued 20,000 shares and on July 1,another 30,000 shares.On December 1,Greenwell repurchased 5,000 shares of outstanding shares.Compute the weighted-average shares of stock for the first year of operation.
A)60,000
B)55,000
C)41,250
D)36,667
Q2) Basic EPS must be computed before diluted earnings per share can be properly computed.
A)True
B)False
Q3) Which one of the following items is not a way for management to influence EPS computations to meet target goals?
A)measurements of impairments on plant,property and equipment
B)determination of tax contingencies
C)market valuation of trading securities
D)choice of inventory cost flow assumptions
Q4) How does IFRS differ from GAAP with diluted earnings per share?
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Chapter 22: Accounting Corrections and Error Analysis
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Q1) Refer to SuperByte Corporation. What amount of depreciation will Laguna Madre record in its income statement on December 31 of the current year?
A)$1,493,617
B)$1,500,000
C)$2,000,000
D)$2,987,234
A)True B)False
Q2) Changes in non-current liabilities relate to financing activities.
A)True B)False
Q3) A change in reporting entity must be treated retrospectively for all years presented in the financial statements.
A)True B)False
Q4) Determine the after-tax cumulative effect in retained earnings at January 1,2016.
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