Accounting for Decision Making Test Questions
Course Introduction
Accounting for Decision Making is a foundational course designed to introduce students to the key principles and practices of accounting as they relate to managerial decision processes. The course examines how financial and non-financial information is gathered, analyzed, and interpreted to support business planning, control, and strategic decision making. Topics include cost behavior, budgeting, variance analysis, performance measurement, and the use of accounting data to make informed operational and investment decisions. Through case studies and practical examples, students develop the skills necessary to use accounting information effectively to solve real-world business problems and contribute to organizational success.
Recommended Textbook
Introduction to Accounting An Integrated Approach 6th Edition by Penne Ainsworth
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Chapter 1: Accounting and Business
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Q1) What distinguishes partnerships from sole proprietorships?
A)Involvement in day-to-day business activities by owners.
B)The extent of liability for the debts of the business
C)The amount of income tax the entity has to pay
D)Mutual agency (each partner can act for other partners)
Answer: D
Q2) Which of the following is the ratio for calculating the current ratio?
A)Current Assets / Current Liabilities
B)Current Assets / Total Liabilities
C)Current Liabilities / Current Assets
D)Current Assets / Total Sales
Answer: A
Q3) Which of the following is an external stakeholder in a supermarket?
A)the manager of the produce department
B)the company which supplies the baked goods for the bakery
C)the cashier at the checkout counter
D)the chief financial officer at the supermarket's corporate headquarters
Answer: B
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Chapter 2: Business Processes and Accounting Information
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Q1) The controller of Allitron,Inc.is one of two individuals in the company allowed to sign checks.This is an application of which of the following internal controls:
A)separating incompatible duties
B)maintaining adequate documents and records
C)requiring proper authorization
D)physically controlling assets and documents
Answer: C
Q2) Identifying incompatible duties is divided into four phases,which of the following is not one of the four phases?
A)Scrutiny
B)Approval
C)Execution
D)Custody
Answer: A
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Chapter 3: Operating Processes: Planning and Control
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Q1) Using regression determine the cost estimation equation and the R<sup>2</sup> for the equation.If Tempo expects to produce 7,000 units in February what cost should Tempo budget for?
Answer: Slope = $5.66
Intercept = $2,222.83
R<sup>2</sup> = .973596
Cost Estimation Equation: Y = $5.66(X)+ $2,222.83
Y = $5.66(7,000)+ $2,222.83
Y = $41,842
Q2) Which of the following would not be collected from the customer when an order is received?
A)Type of inventory ordered
B)Name of common carrier that will deliver the goods
C)Price Quoted
D)Delivery Date
E)All of the above will be collected
Answer: B
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Chapter 4: Short-Term Decision Making
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Q1) The Manhattan Company sells its one and only product for $89.00 per unit.Variable costs per unit amount to $63.50,and total fixed costs are $3,697,500.If Manhattan increases its selling price to $95 how will this affect the breakeven point in units?
A)The breakeven point will increase 28,889 units
B)The breakeven point will decrease 116,111 units
C)The breakeven point will increase 116,111 units
D)The breakeven point will decrease 28,889 units
Q2) The Manhattan Company sells its one and only product for $89.00 per unit.Variable costs per unit amount to $63.50,and total fixed costs are $3,697,500.If management desires a before tax profit of $765,000,total sales revenue must equal:
A)$ 2,670,000
B)$ 4,462,500
C)$15,575,000
D)$68,085,000
Q3) Explain why the total amount of loss increases as the number of units sold falls below the breakeven point?
Q4) Explain the effect on breakeven point of an increase in (a)direct labor cost and (b)factory rent.
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Chapter 5: Strategic Planning Regarding Operating Processes
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Q1) When the iPhon was introduced its price was set by which of the following?
A)Bonus pricing
B)Life-cycle pricing
C)Penetrating pricing
D)Skimming pricing
Q2) Which of the following is not withheld from the employee's check?
A)Federal Unemployment Tax
B)Federal Income Tax
C)Social Security
D)Union dues
Q3) Which of the following statements is false?
A)JIT is a pull system.
B)The JIT philosophy is based on continuous improvement.
C)JIT requires a company to have strong relationships with its suppliers.
D)All of the above are true.
Q4) Which of the following business are considered part of monopolistic competition?
A)Power Company
B)Athletic Shoe Company
C)Oil Company
D)Fruit Farmer
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Chapter 6: Planning, The Balanced Scorecard, and Budgeting
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Q1) Conversion cycle planning consists of all the following except:
A)scheduling labor
B)scheduling production
C)purchasing merchandise
D)planning manufacturing overhead
Q2) A plan for the future expressed in quantitative terms is called a:
A)cycle
B)budget
C)commentary
D)mathematical model
Q3) Hepburn's SG&A expenses,paid as incurred,are $100,000 per month plus 5 per cent of sales.What amount should Hepburn budget for SG&A for April?
A)$230,000
B)$178,000
C)$160,000
D)$102,600
Q4) Describe the relationship between the Production Budget used in Conversion Process Planning and the Direct Materials Purchase Budget and the Direct Labor and Overhead Budget used in the Expenditure Planning Process.
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Chapter 7: Accounting Information Systems
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Q1) Which of the following association of accounts and statements is not correct?
A)Cash & Balance Sheet
B)Revenue & Income Statement
C)Dividends Paid & Income Statement
D)Prepaid Insurance & Balance Sheet
Q2) The year-end accrual adjustment to record the estimated expense for a telephone bill not yet received would include a:
A)debit to telephone payable
B)debit to cash
C)credit to accounts payable
D)credit to prepaid telephone expense
Q3) Net income would decrease as a result of which of the following adjustments?
A)Adjusting unearned revenue
B)Accruing a revenue
C)Accruing an expense
D)Recording revenue earned but not received
Q4) Merta Inc.reported revenues of $500,000,expenses of $340,000 and operating income of $160,000.Explain the information contained in each of these figures.
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Chapter 8: Purchasinghuman Resourcespayment Process:
Recording and Evaluating Expenditure Process Activities
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Q1) The payroll tax which is paid by both the employee and the employer is:
A)FICA
B)FUTA
C)SUTA
D)Federal Income Taxes
Q2) In a periodic inventory system,the journal entry to record the sale of merchandise on account would include a:
A)debit to Cost of Goods Sold
B)credit to Accounts Payable
C)debit to Inventory
D)no entry involving Inventory or Cost of Goods Sold
Q3) In a perpetual inventory system,the journal entry to record the purchase of merchandise on account includes a:
A)credit to Cash
B)debit to Purchases
C)debit to Inventory
D)credit to Accounts Receivable
Q4) Why would the amount of supplies expense differ from the amount of cash paid for supplies in a year?
Chapter 9: Recording and Evaluating Conversion Process Activities
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Q1) The standard cost for facility sustaining manufacturing overhead is $536,000 if the company produces 78,000 units of product.Actual facility sustaining manufacturing overhead to produce 79,500 units of product was $531,500.What is the standard cost of sustaining manufacturing overhead at the actual level of production?
A)$521,472
B)$531,500
C)$536,000
D)$546,308
Q2) Which of the following is not included in cost of work-in-process?
A)Direct labor
B)Requisition of raw material
C)Purchase of raw material
D)Application of overhead
Q3) Which of the following shows the order of cost flows through the manufacturing inventories?
A)raw materials,finished goods,work-in-process
B)raw materials,work-in-process,finished goods
C)work-in-process,raw materials,finished goods
D)work-in-process,finished goods,raw materials
Page 11
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Chapter 10: Recording and Evaluating Revenue Process Activities
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Q1) Voyager Products,Inc.reported sales revenue of $295,000,beginning and ending accounts receivable of $24,600 and $31,800,respectively,and beginning and ending customer deposits of $18,600 and $14,500,respectively.Cash collections from customers during the year were:
A)$306,300
B)$295,000
C)$283,700
D)$277,700
Q2) On December 31,2010,Aurora Enterprises failed to make the necessary adjusting entry for estimated uncollectible accounts.This error would cause an:
A)understatement of net income and an understatement of liabilities
B)overstatement of net income and an understatement of liabilities
C)overstatement of net income and an overstatement of assets
D)understatement of assets and stockholders' equity
Q3) Which of the following is not an advantage of LIFO over FIFO?
A)lower income taxes
B)better inventory figure on balance sheet
C)better matching of revenues and costs on the income statement
D)cost of goods sold better approximates current replacement cost
Page 12
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Chapter 11: Time Value of Money
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Q1) The future value of a $7,000 investment at the end of 4 years with an interest rate of 6% compounded annually is:
A)$8,680.00
B)$8,837.50
C)$5,544.70
D)$8,867.60
Q2) Heather Whitestone wants to retire at the age of 65.She is 45 years old today and will start making semiannual deposits into an investment account in 6 months.Heather would like to have $1,000,000 on her 65th birthday.Assuming Whitestone can earn 8% interest compounded semiannually on her investments; determine the required amount of each semiannual deposit.
Q3) Explain the relationship between an expected rate of return on an investment and the actual return that will actually occur.Explain the role expected return plays in investment decisions.
Q4) In compound interest calculations,as the frequency of compounding increases,the:
A)total amount of interest decreases
B)annual interest rate increases
C)total amount of interest increases
D)the interest rate decreases
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Chapter 12: Planning Investments: Capital Budgeting
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Q1) Donnelly Company is considering investing in a sizable piece of equipment and their analysis yielded a positive NPV of $23,500.Which of the following statements is not True?
A)The new equipment will increase net income by $23,500
B)Donnelly should buy the machine
C)The new equipment is likely to generate a return greater than Donnelly's cost of Capital.
D)The Donnelly Company should recover the cost of the new equipment.
Q2) Ignoring income taxes,Briarwood should:
A)not purchase the equipment since the net-present-value is negative
B)not purchase the equipment since the net-present-value is positive
C)purchase the equipment since the net-present-value is negative
D)purchase the equipment since the net-present-value is positive
Q3) If the net-present-value of an investment is negative,the:
A)Proposed investment should be rejected
B)Firm's cost of capital is greater than the discount rate
C)Investment's return is greater than the firm's cost of capital
D)Cost of the asset is less than the present value of the future cash flows
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Chapter 13: Planning Equity Financing
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Q1) Russ,Adam,and Brent,who are partners in the Bowinkles Company,had ending capital balances for the current year equal to $95,000,$43,000,and $62,000,respectively.If the partners share income and losses based on the ratio of these ending capital balances,Brent's share of $95,000 in partnership income would be:
A)$58,900
B)$29,450
C)$23,900
D)$0
Q2) Which of the following statements is not true about the times-interest-earned ratio?
A)The greater the times interest earned the lower the risk of defaulting on the firm's debt.
B)The greater the interest expense,the lower the firm's times-interest-earned ratio.
C)The smaller the times-interest-earned the lower the financial risk of the company.
D)A high times-interest-earned and a high debt to equity ratio means the company is effectively using financial leverage.
Q3) What is par value? Why do corporations usually select a low par value?
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Chapter 14: Planning Debt Financing
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Q1) Convertible bonds may dilute existing stockholders' interest in the corporation.This means
A)convertible bonds reduce common stockholders' earnings because they must pay a higher interest rate than nonconvertible bonds
B)the amount of cash paid out when the convertible bonds are converted will reduce common stockholders' dividends
C)the shares issued for convertible bonds have a preference over other common shares
D)conversion of the bonds would increase the number of common shares outstanding
Q2) You have just purchased a new Mercedes for $65,000.You have made a $12,000 down payment and have signed an installment note for the $53,000.The note has an interest rate of 8% and calls for you to make twenty quarterly payments starting three months from today.What will be the amount of each quarterly payment on this loan? How much of the first payment will be principal and how much will be interest?
Q3) If a company wants to raise $40,000 using a 5 year noninterest bearing note,what would be the face value of the note if the market rate is 10% compounded annually? What is the interest incurred on the note in the first year of its life?
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Chapter 15: Recording and Evaluating Capital Resource
Process Activities: Financing
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Q1) The issuance of common stock for cash would appear on the A)income statement and statement of cash flows
B)statement of cash flows and statement of stockholders' equity
C)income statement,balance sheet and statement of stockholders' equity
D)income statement,statement of cash flows and statement of stockholders' equity
Q2) On September 1,2010,Trego Contractors purchased machinery by paying $15,000 down and signing a 4-year,10% installment note for the $60,000 balance.The loan agreement called for 8 semiannual payments beginning March 1,2011.Assume Trego has a 12/31 fiscal year end.
A.Determine the amount of each semiannual payment (round to the nearest dollar).
B.Prepare journal entries for the first two payments, including the accrual at year end.
C.Show how this note would impact the Trego's income statement, balance sheet and cash flow statements for the 12/31/10 fiscal year.
Q3) As the Discount on Notes Payable account is reduced:
A)a credit is made to the Interest Expense account
B)the market value of the note is also reduced
C)the carrying value of the note is increased
D)the face rate of interest is increased
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Chapter 16: Recording and Evaluating Capital Resource
Process Activities: Investing
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Q1) What is a company's primary objective when reporting depreciation in its annual financial statements? What is the primary objective for tax reporting purposes? Is depreciation expense always the same for tax and financial reporting purposes? Explain.
Q2) Irmelas Enterprises owns some equipment with an original cost of $84,700 and accumulated depreciation of $41,650.If the equipment is sold for $9,500 in cash plus a 9-month $30,000 note receivable with a stated 12% interest rate,the gain or loss recognized on the sale would be:
A)$3,550 loss
B)$3,550 gain
C)$2,150 loss
D)$2,150 gain
Q3) Which of the following statements about interest costs is correct?
A)interest on money specifically borrowed to finance construction of an asset should be capitalized
B)a proportionate share of all interest incurred during the life of an asset should be capitalized
C)interest cost incurred during construction of an asset can be capitalized
D)no interest should be capitalized
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Chapter 17: Company Performance: Profitability
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Q1) Assume a company has no dilutive securities.What number will be greater?
A)basic earnings per share
B)diluted earnings per share
C)question cannot be answered
D)A & B should be the same
Q2) Fishing Lures Inc.reported a net income of $15,000.The dividends declared & paid to the common shareholders equaled $5,000.Fishing Lures Inc.had 10,000 shares outstanding all year long.What is Fishing Lures Inc.'s earnings per share?
A)$ .50
B)$ 1.00
C)$ 1.50
D)$ 2.00
Q3) Product line income reports:
A)are a type of current cost income statement
B)show the costs of each division on a full-costing basis
C)make it more difficult to evaluate the performance of a division manager
D)include only those costs controlled by a given product-line or division manager
Q4) What is comprehensive income and how does it differ from net income?
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Chapter 18: Company Performance: Owners Equity and Financial Position
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Q1) Potential events that could create negative financial results for a company,which are required to be recorded when the event is both probable and reasonably estimated in terms of its monetary effects,are referred to as:
A)deferred charges
B)cumulative effects
C)contingent liabilities
D)prior period adjustments
Q2) Which of the following statements is prepared as of a given point in time?
A)Balance sheet
B)Income statement
C)Statement of cash flows
D)Statement of stockholders' equity
Q3) Borrowing money in a manner designed to avoid having to record the resulting obligation as a liability in the financial statements is referred to as:
A)compensating balance financing
B)off-balance sheet financing
C)contingent financing
D)deferred financing
Q4) How can a balance sheet predict a company's future net income?
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Chapter 19: Company Performance: Cash Flows
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Q1) Collections of cash from the sale of land would be reported in the following section of the statement of cash flows:
A)investing activities
B)operating activities
C)financing activities
D)noncash investing and financing activities
Q2) Explain how depreciation is handled under the direct and indirect methods of reporting cash flow from operating activities.Why is it treated this way?
Q3) The reporting format for the statement of cash flows which shows the difference between accrual-based net income and cash flows from operations is the:
A)direct format
B)indirect format
C)noncash format
D)allowance format
Q4) In 2010 Penoke Corporation retired $1,000,000 of its long-term bonds early and as a result of the transaction generated a gain of $100,000.How much cash did Penoke pay to retire the bonds early and in what section would the cash payment be reported on the statement of cash flows?
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Chapter 20: Company Performance: Comprehensive Evaluation
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Q1) What are the two elements of return on assets?
A)return on equity and return on sales
B)return on equity and asset turnover
C)return on sales and asset turnover
D)return on sales and profit margin
Q2) The return on owners' equity for 2010 was:
A)30.0%
B)30.8%
C)53.6%
D)84.3%
Q3) When conducting an audit,the auditor can render one of the following.Which one indicates that the auditor was not able to complete the audit and the CPA can not render an opinion.
A)Adverse Opinion
B)Disclaimer
C)Unqualified Opinion
D)Qualified Opinion
Q4) If a firm's return on assets decreases and its asset turnover increases,how has the return on sales changed? Was this change more or less than the change in asset turnover? Explain.
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