Accounting for Decision Making Review Questions
Course Introduction
Accounting for Decision Making introduces students to the fundamental concepts and practices of accounting with a focus on how financial and managerial accounting information supports effective decision making in organizations. The course explores the preparation and interpretation of financial statements, cost analysis, budgeting, performance evaluation, and the use of accounting data in strategic planning and operational control. Through case studies and real-world examples, students learn to analyze financial information from the perspective of managers, investors, and other stakeholders to make informed choices that drive organizational success.
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Accounting for Non Specialists 7th Australian Edition by Atrill McLaney
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Page 2
Chapter 1: Introduction to Accounting
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Sample Questions
Q1) A business that is not a legal entity, where there is one owner who is fully liable for all debts, is:
A)a proprietary company.
B)a partnership.
C)a sole proprietorship.
D)none of the above.
Answer: C
Q2) Sustainability reporting focuses on:
A)financial aspects.
B)environmental and social factors.
C)customer satisfaction.
D)Both A and C.
Answer: B
Q3) The best explanation of relevance is:
A)ensuring the benefit of the information is greater than the cost of providing it.
B)ensuring that information is expressed as clearly as possible.
C)ensuring that information is useful for decision-making.
D)ensuring that information is free from bias.
Answer: C
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Page 3
Chapter 2: Measuring and Reporting Financial Position
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Sample Questions
Q1) In the accounting equation, claims on the business are of two broad types:
A)bills payable and bills receivable.
B)liabilities and equity.
C)loans to and loans from outsiders.
D)accounts receivable and accounts payable.
Answer: B
Q2) Which statement concerning the reserves component of equity is not correct?
A)Reserves represent cash.
B)Retained profits and reserves are often classified under the general heading of reserves.
C)The higher the dividend paid by the company, the lower the reserves.
D)Many reserves arise as transfers from retained profits.
Answer: A
Q3) Which of these is not always a characteristic of an asset?
A)Ability of the benefit to be measured in money terms.
B)Exclusive control of the economic benefits.
C)Legal ownership by the entity.
D)Probable expected future economic benefits.
Answer: C
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Chapter 3: Measuring and Reporting Financial Performance
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Sample Questions
Q1) Identify the outgoing that could not appear in the statement of financial performance.
A)Interest paid.
B)Wages and salaries.
C)Purchase of flowers for the waiting room.
D)Repayment of loan.
Answer: D
Q2) The method of inventory valuation that assumes earliest inventory acquired comprises the stock of inventory at the end of the period is the:
A)reducing-balance method.
B)FIFO method.
C)average cost method.
D)LIFO method.
Answer: D
Q3) How are prepaid expenses classified in the statement of financial position?
A)current asset.
B)non-current asset.
C)non-current liability.
D)current liability.
Answer: A
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Chapter 4: Introduction to Limited Companies
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Sample Questions
Q1) Which of these is not a consequence of the status of a company as a separate legal entity?
A)The right to retain profits.
B)The obligation to pay taxation.
C)The right to enter into contracts in its own name.
D)None of the above, i.e., all are consequences of the status of a company as a separate legal entity.
Q2) How are dividends that have been declared and authorized but remain unpaid at the end of the year, recorded in the statement of financial position?
A)as a current asset.
B)as a current liability.
C)as a non-current liability.
D)as a non-current asset.
Q3) If a company issues 25,000 ordinary shares which are sold at $4 per share, the effect on the accounting equation is:
A)increase cash $100,000; decrease in shareholders' equity $80,000.
B)increase cash $100,000; increase in liabilities $80,000.
C)increase cash $100,000; increase in shareholders' equity $100,000.
D)none of the above.
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Page 6
Chapter 5: Regulatory Framework for Companies
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Q1) Which of the following statements is true about the order of repayment for a company in liquidation?
A)creditors rank before ordinary shareholders.
B)ordinary shareholders rank before preference shareholders.
C)wages owing to employees rank last.
D)All of the statements are true.
Q2) Which of these is a reason why companies are more heavily regulated than sole proprietorships or partnerships?
A)The owners (shareholders)are often removed from the day-to-day running of the business.
B)As companies have limited liability, there is a greater need to protect creditors from financial loss.
C)The members of a company operate under the mutual agency principle.
D)Both A and B.
Q3) Currently worldwide, most major economies have either adopted IFRSs or:
A)are moving towards the adoption of such.
B)have elected never to use IFRSs.
C)have set timelines to converge with IFRSs.
D)Both A and C.
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Page 7
Chapter 6: Measuring and Reporting Cash Flows
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Sample Questions
Q1) Xi Co provides you with the following information about its equipment account: Opening balance of equipment \(\quad \$ 300,000\)
Closing balance of equipment \(\quad \$ 550,000\) If machinery that originally cost $100,000 was sold during the year, what was the value of new equipment purchased?
A)$250,000.
B)$350,000.
C)$550,000.
D)$150,000.
Q2) Which of the following are not operating cash flows?
A)income tax paid.
B)interest received.
C)payments to suppliers.
D)dividends paid to shareholders.
Q3) The purpose of the statement of cash flows is to provide information on: A)profits.
B)net worth.
C)losses.
D)cash inflows and outflows.
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Chapter 7: Corporate Social Responsibility and Sustainability Accounting
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Sample Questions
Q1) Under the GRI Guidelines for General Standard Disclosures, which of the following would not be reported under governance?
A)The process for appointing executives responsible for environmental issues.
B)A listing of all organisations constituting the group in the consolidated report.
C)The composition and process selection for directors.
D)Processes followed for consultation between the executive body and the stakeholders.
Q2) In 2018 in Australia, voluntary disclosures in annual reports relating to social responsibility accounting can be described as:
A)becoming more common.
B)rare.
C)occasional.
D)universal.
Q3) Aspects of corporate social responsibility are:
A)impact on employment and job creation.
B)health and safety.
C)pollution.
D)all of the above.
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Page 9
Chapter 8: Analysis and Interpretation of Financial Statements
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Sample Questions
Q1) Operating profit before interest and taxation, divided by sales × 100/1 is the formula for:
A)return on capital employed.
B)asset turnover period.
C)return on shareholders' funds.
D)operating profit margin.
Q2) What does the acid test ratio eliminate from its calculation, because it is considered the least liquid of the current assets?
A)bank bills
B)accounts receivable
C)government securities
D)inventory
Q3) Which of the following businesses would you expect to have the highest current ratio?
A)Service business that sells on credit.
B)Manufacturer.
C)Retailer.
D)Service business that sells for cash.
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Chapter 9: Cost-Volume-Profit Analysis and Relevant
Costing
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Sample Questions
Q1) Opal Incorporated sold 30,000 units of its product last year with the following results: \(\begin{array}{lr}
\text { Sales revenue } & \$ 900,000 \\
\text { Variable Costs } & 630,000 \\
\text { Contribution Margin } & 270,000 \\
\text { Fixed Costs } & \underline{190,000} \\
\text { Operating Profit } & \$ 80,000
\end{array}\) The company expects variable costs to increase by $3 per unit this year.
REQUIRED:
a)Assuming the unit sales price remains constant, compute the unit contribution margin for this year.
b)Given the expected change in variable costs, how many units will have to be sold this year to earn the same operating profit as last year?
Q2) The term 'relevant range,' means the range:
A)over which costs are relevant.
B)of activity within which an entity would normally operate.
C)where the firm will break-even.
D)over which the firm has a margin of safety.
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Chapter 10: Full Costing
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Sample Questions
Q1) The base for allocating overhead costs most commonly used in practice is:
A)Direct labour cost.
B)Direct labour hours.
C)Machine hours.
D)Units produced.
Q2) Which of these is not a use of full cost information?
A)Pricing.
B)Income measurement.
C)Short-term decision-making.
D)None of the above, i.e., all are a use of full cost information.
Q3) Refer to the table above. If the budgeted direct labour hours change to 25,000 hours, what will be the revised quote?
A)$2,128.
B)$2,348.
C)$2,208.
D)$2,368.
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Chapter 11: Budgeting
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Sample Questions
Q1) The reconciliation between budgeted profit and actual profit can be summarised as:
A)budgeted profit minus all favourable variances plus all adverse variances equals actual profit.
B)actual profit plus all favourable variances plus all adverse variances equals budgeted profit.
C)actual profit plus all favourable variances minus all adverse variance equals budgeted profit.
D)budgeted profit plus all favourable variances minus all adverse variance equals actual profit.
Q2) The total direct materials variance is best explained by:
A)the variance cannot be explained unless the budget is flexed to actual production.
B)better use of materials by the production manager.
C)a change in price of the raw materials.
D)the production manager failing to control the material usage.
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13
Chapter 12: Capital Investment Decisions
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Sample Questions
Q1) What investment decision method takes the average profit and expresses it as a percentage of the average investment?
A)Accounting Rate of Return.
B)Net Present Value.
C)Payback.
D)Internal Rate of Return.
Q2) Container Ltd, a manufacturing firm, is considering investing $110,000 in a new mainframe computer. It is estimated that net cash flow per year will be $30,000 and the computer will have a 10-year useful life and zero residual value. The machine will be depreciated on a straight-line basis. What is the accounting rate of return?
A)10.55%.
B)30.0%.
C)22.72%.
D)15.86%.
Q3) The finding from surveys of the methods of business investments that is true is:
A)businesses generally only use one method to assess each investment decision.
B)there is a tendency for larger businesses to use the discounting methods.
C)the payback method is hardly used in practice.
D)All of the statements are true.
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Page 14
Chapter 13: The Management of Working Capital
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Q1) Which of these is not a cost of holding insufficient levels of inventory?
A)Extra inventory storage costs.
B)Lost production because of shortages of raw materials.
C)High transportation costs on rush deliveries of inventory.
D)Loss of sales.
Q2) The most important reason for holding cash is:
A)to obtain tax benefits.
B)for liquidity.
C)to avoid changes in interest rates.
D)to earn interest.
Q3) Orange Company expects demand for a product to be 12,005 units annually. It costs $5 per unit to hold inventory for one year. Order costs are $50 per order. The economic order quantity is:
A)600 units.
B)1,200 units.
C)240 units.
D)490 units.
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Page 15
Chapter 14: Financing the Business
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Sample Questions
Q1) Which of the following is not a type of short-term debt finance?
A)Bank overdraft.
B)Factoring of accounts payable.
C)Invoice discounting.
D)None of the above.
Q2) A disadvantage of short-term debt over long-term debt is:
A)less flexibility.
B)greater frequency of re-funding.
C)a greater likelihood of penalties for early repayment.
D)All are disadvantages.
Q3) The form of short-term finance where another entity takes over the firm's debtors' accounts for a payment of around 85% of the accounts balance is known as:
A)bills receivable.
B)discounting.
C)debt factoring.
D)none of the above.
Q4) Discuss the advantages and disadvantages of a company issuing long-term debt, e.g., debentures, compared to raising funds through an issue of shares.
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Page 16