Accounting for Managers
Chapter Exam Questions
Course Introduction
Accounting for Managers is designed to equip future business leaders with a comprehensive understanding of fundamental accounting principles and their application in decision-making. The course covers key topics such as financial statement analysis, budgeting, cost management, and performance evaluation from a managerial perspective. Emphasizing the interpretation and use of accounting information rather than its preparation, students learn how to analyze financial data, assess organizational performance, and make informed strategic decisions that drive business success. Real-world examples and case studies are utilized to illustrate how accounting functions as a critical tool for planning, control, and organizational leadership.
Recommended Textbook
Financial and Managerial Accounting 10th Edition by Belverd E. Needles
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Page 2
Chapter 1: Uses of Accounting Information and the Financial Statements
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Q1) The evaluation and interpretation of financial statements and related performance measures is called technical analysis.
A)True
B)False
Answer: False
Q2) Accountants consider money the common unit of measure for all business transactions.
A)True
B)False
Answer: True
Q3) The correct order of the three stages of accounting is
A)communication,processing,and measurement.
B)measurement,communication,and processing.
C)processing,measurement,and communication.
D)measurement,processing,and communication.
Answer: D
Q4) Payment to a creditor is an example of a nonexchange business transaction.
A)True
B)False
Answer: False
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Chapter 2: Measurement Concepts: Recording Business Transactions
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Q1) Which of the following events does not require a journal entry?
A)Purchase of a one-year insurance policy.
B)Agreement to perform a service at a future date.
C)Payment for a service performed previously.
D)All of these choices.
Answer: B
Q2) The double-entry system is possible because all business transactions have at least two equal and opposite aspects.
A)True
B)False
Answer: True
Q3) When a business reports an asset at an inflated dollar amount,is has violated the measurement issue of
A)recognition.
B)valuation.
C)classification.
D)realization.
Answer: B
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Chapter 3: Measuring Business Income: Adjusting the Accounts
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Q1) For each of the following oversights,state whether stockholders' equity will be understated,overstated,or not affected.
______ a.Failure to record depreciation
______ b.Failure to record accrued wages
______ c.Failure to convert unearned revenue to earned revenue
______ d.Failure to record accrued interest in the bank
______ e.Failure to record expired insurance
______ f.Failure to record revenue earned but not yet received
Answer: a.Overstated
b.Overstated
c.Understated
d.Understated
e.Overstated
f.Understated
Q2) A net loss results in a decrease in A)revenues.
B)expenses.
C)stockholders' equity.
D)liabilities.
Answer: C
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Chapter 4: Foundations of Financial Reporting and the
Classified Balance Sheet
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Q1) The normal operating cycle helps define which of the following balance sheet sections?
A)Stockholders' equity
B)Current liabilities
C)Intangible assets
D)Property,plant,and equipment
Q2) Goodwill would appear in which balance sheet section?
A)Investments
B)Property,plant,and equipment
C)Current assets
D)Intangible assets
Q3) Why is it important for a company to maintain the same accounting methods and practices from period to period?
Q4) Natural resources,such as coal mines and oil wells,are classified as intangible assets.
A)True B)False
Q5) Asset turnover measures how efficiently assets are used to produce revenues. A)True B)False
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Chapter 5: Accounting for Merchandising Operations
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Q1) The entry to record a purchase of $12,000 in merchandise assuming terms of 2/10,n/30 and a periodic inventory system would include a(n)
A)increase to Accounts Payable for $12,000.
B)increase to Purchases Discounts for $240.
C)decrease to Purchases for $12,000.
D)decrease to Accounts Payable for $11,760.
Q2) A discount that buyers take for early payment of merchandise is called a A)customer discount.
B)purchases discount.
C)sales discount.
D)trade discount.
Q3) Interest expense on a mortgage would be classified on a multistep income statement under the heading
A)general and administrative expenses.
B)selling expenses.
C)cost of goods sold.
D)other revenue and expenses.
Q4) A merchandiser's operating cycle concludes with the sale of goods.
A)True
B)False
Page 7
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Chapter 6: Inventories
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Q1) What is a LIFO liquidation,and what is its effect on income before income taxes?
Q2) Inventory is an example of a long-term asset.
A)True
B)False
Q3) Valuation of inventory on the balance sheet impacts cost of goods sold on the income statement.
A)True
B)False
Q4) An understatement of ending inventory in one period results in
A)an overstatement of the ending inventory of the next period.
B)an understatement of gross margin of the next period.
C)an overstatement of gross margin of the next period.
D)no effect on gross margin of the next period.
Q5) The term cost flow refers to the association of costs with their assumed flow in the operation of a business.
A)True
B)False
Q6) Why are cost flow assumptions made when accounting for merchandise inventory?
Q7) Under rising prices,why will the FIFO method produce a higher ending inventory than LIFO?
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Chapter 7: Cash and Internal Control
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Q1) Taking a physical inventory is not necessary under a perpetual inventory system.
A)True
B)False
Q2) The bonding of employees is an example of which feature of a good system of internal control?
A)Authorization of transactions
B)Sound personnel policies
C)Separation of duties
D)Limited access to assets
Q3) Bonding means insuring a company against loss due to employee theft.
A)True
B)False
Q4) The Sarbanes-Oxley Act of 2002 does not apply to
A)public companies with assets over $300 million.
B)public companies with assets under $1 million.
C)privately owned companies.
D)companies established after 2002.
Q5) Why do businesses need to keep some currency on hand?
Q6) Explain management's responsibility as it pertains to internal control of a company.
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Chapter 8: Receivables
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Q1) The direct charge-off method of recognizing uncollectible accounts is not in accordance with generally accepted accounting principles.
A)True B)False
Q2) The holder,or payee,of a dishonored note should transfer the total amount due,including interest income,from Notes Receivable to an individual account receivable for the debtor.
A)True
B)False
Q3) The debtor named in a promissory note is called the payee.
A)True
B)False
Q4) Purchasing receivables with recourse is riskier than purchasing them without recourse.
A)True B)False
Q5) The Allowance for Uncollectible Accounts is a contra-asset account. A)True B)False
Q6) Explain the two methods used to estimate uncollectible accounts.
Page 10
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Chapter 9: Long-Term Assets
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Q1) Partial-year depreciation may be rounded to the nearest whole month or the half-year convention may be used.
A)True B)False
Q2) The cost of assets acquired for a lump sum should be allocated equally among the acquired assets.
A)True B)False
Q3) Extraordinary repairs are recorded with a debit to Accumulated Depreciation. A)True B)False
Q4) A capital expenditure will result in an immediate increase in long-term assets. A)True B)False
Q5) In general,how does one determine whether or not an expenditure should be included in the acquisition cost of property,plant,and equipment?
Q6) Depreciation should not be recorded for an asset that is increasing in value. A)True B)False
Page 11
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Chapter 10: Current Liabilities and Fair Value Accounting
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Q1) Current liabilities are classified as either definitely determinable liabilities or contingent liabilities.
A)True
B)False
Q2) A company purchases an asset on a deferred payment plan,ultimately paying $15,000.On the payment date,the company would
A)credit Cash for less than $15,000.
B)debit Interest Expense for the imputed amount.
C)debit the asset account for $15,000.
D)debit Accounts Payable for $15,000.
Q3) Recording estimated product warranty expense in the year of the sale best follows which of the following accounting principles?
A)Matching
B)Consistency
C)Historical cost
D)Full disclosure
Q4) Potential vacation pay should be accounted for as a commitment.
A)True
B)False
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Chapter 11: Long-Term Liabilities
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Q1) Discuss and define financial risk,financial leverage,and negative financial leverage.
Q2) If a bond has a face interest rate of 6 percent,a face value of $40,000,and pays interest semiannually,each interest payment will amount to $1,200.
A)True B)False
Q3) On December 31,20x5,the balance sheet of the Nowicki Company reported 2,000 bonds outstanding with a face value of $1,000,000 and a related unamortized discount of $70,000.The bonds are convertible at the rate of 25 shares of common stock for each $1,000 bond.On January 1,20x6 ,the bondholders presented $800,000 of the bonds for conversion.The entry to record this conversion contained a credit to Additional Paid-in Capital for $344,000.Calculate the par value per share of the common stock.
Q4) On January 1,20x5,Ed Bradley Co.issued five-year term bonds with a face value of $700,000.Interest is payable annually on December 31.The bonds were issued for $727,300.The effective interest method of amortization is used.Ed Bradley reported Bond Interest Expense of $65,457 on its income statement for the year ended December 31,20x5.Calculate the effective interest rate for these bonds.
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Chapter 12: Stockholders Equity
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Q1) The purchase of treasury stock will result in
A)no net changes in assets,liabilities,or stockholders' equity.
B)a decrease in assets and a decrease in stockholders' equity.
C)a decrease in one asset account and an increase in a different asset account.
D)a decrease in assets and a decrease in liabilities.
Q2) In computing book value per share of common stock,common stock distributable is included in the divisor.
A)True
B)False
Q3) The sale of treasury stock cannot result in
A)an increase in Retained Earnings.
B)the crediting of Paid-in Capital,Treasury Stock.
C)the debiting of Paid-in Capital,Treasury Stock.
D)an increase in total stockholders' equity.
Q4) When no-par common stock without a stated value is issued for cash,the Common Stock account is credited for an amount equal to the cash proceeds.
A)True
B)False
Q5) Define outstanding stock.
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Chapter 13: The Statement of Cash Flows
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Q1) The indirect method of preparing a statement of cash flows
A)eliminates the need for a schedule of noncash investing and financing transactions.
B)provides a different result than the direct method.
C)adjusts net income for changes in current accounts.
D)shows collections from customers rather than the change in Accounts Receivable.
Q2) For this item extracted from the financial statements-Dividend Income (assume that cash received is equal to amount reported)-indicate the effect on net income in arriving at net cash flows from operating activities by choosing one of the following:
A)Add to net income to arrive at net cash flows from operating activities.
B)Subtract from net income to arrive at net cash flows from operating activities.
C)Not used to adjust net income to calculate net cash flows from operating activities.
Q3) Interest received on investments would be included in the operating activities category on the statement of cash flows.
A)True
B)False
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Chapter 14: Financial Statement Analysis
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Q1) The sale of plant assets and the payment of dividends will increase free cash flow.
A)True
B)False
Q2) In a common-size income statement,each item is expressed as a percentage of net income.
A)True
B)False
Q3) A ratio of net income of $100,000 to sales of $1,000,000 can be stated as
A)Net income is 1/10,or 10 percent,of sales.
B)For every dollar of sales,the company has an average net income of 10 cents.
C)The ratio of sales to net income is 10 to 1 (10:1),or sales are 10 times net income.
D)All of these choices.
Q4) A company that is leveraged is one that
A)contains debt financing.
B)contains equity financing.
C)has a high earnings per share.
D)has minimized its risk of loss by acquiring a portfolio of investments.
Q5) Briefly explain a "big bath" including when it occurs and why it occurs.
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Chapter 15: Managerial Accounting and Cost Concepts
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Q1) The management process and management accounting are identical.
A)True
B)False
Q2) Which of the following costs is not an inventoriable cost?
A)Cost to ship products to a customer
B)Cost of factory machinery used in production
C)Cost to design the product
D)Plant supervisor's salary
Q3) Practitioners of management accounting and financial management have a responsibility to communicate information fairly and objectively.
A)True
B)False
Q4) Which of the following is included in prime costs?
A)Overhead costs
B)Indirect materials costs
C)Selling and administrative costs
D)Direct labor costs
Q5) All product costs are expensed in the period in which they are paid in cash.
A)True
B)False
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Chapter 16: Costing Systems: Job Order Costing
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Q1) Job estimates must be compared with actuals for evaluating performance.
A)True
B)False
Q2) Which of the following will help mangers set reasonable selling prices?
A)Previous year net income of the company
B)Number of employees in the company
C)Unit cost knowledge of the product
D)Previous year's income tax variance
Q3) The _________ provides the most direct means of calculating unit costs for a job.
A)job order cost card
B)Finished Goods Inventory account
C)general ledger
D)Materials Inventory account
Q4) When planning,managers allocate overhead costs using either the traditional or ABC approach.
A)True
B)False
Q5) Explain the similarities and differences between job order costing and process costing.Focus on the characteristics of each system.
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Chapter 17: Costing Systems: Process Costing
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Q1) Units transferred out of Department A of Answer during October were
A)335,000.
B)370,000.
C)325,000.
D)340,000.
Q2) Because process costing is normally associated with a continuous production flow,products that are in process at the beginning of the period are assumed to be the first products completed during the current period.
A)True
B)False
Q3) The total costs that will be transferred into the Finished Goods Inventory account of Nader Inc.during the current period are
A)$153,080.
B)$170,880.
C)$171,788.
D)$189,600.
Q4) Mention the two cost allocation methods used in a process costing system.
Q5) Describe how the process costing information is used by managers in every stage of the management process.
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Chapter 18: Value-Based Systems: Activity-Based Costing and Lean Accounting
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Q1) The use of computer monitoring allows product costs to be traced directly to work cells.
A)True
B)False
Q2) Which of the following statements is incorrect in comparing activity-based management (ABM)and lean operations?
A)Both identify value-adding and nonvalue-adding activities
B)ABM uses a simpler accounting system
C)Both are activity-based systems
D)Lean manufacturing reorganizes production activities into workcells
Q3) A bill of activities is used to compute both the costs assigned to activities and the product unit cost.
A)True
B)False
Q4) Customer relations are usually part of
A)the supply chain.
B)the value chain.
C)both the value chain and the supply chain.
D)neither the value chain nor the supply chain.
20
Q5) How can activity-based systems help managers in a global marketplace?
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Chapter 19: Cost-Volume-Profit Analysis
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Q1) Breakeven analysis adjusted for a targeted profit
A)is a difficult computation that is not normally employed.
B)decreases the number of units required to breakeven.
C)is excellent for performing "what-if" analysis.
D)is a poor basis for evaluating the profitability of a venture.
Q2) The contribution margin income statement divides costs into variable and fixed costs.
A)True
B)False
Q3) A contribution margin income statement is formatted to emphasize cost behavior rather than organizational functions.
A)True
B)False
Q4) Speed Zone Inc. ,dealers in automobiles,pays its employees a commission of 5 percent on each sale.What is the proper classification of the cost of sales commissions?
A)Scattered cost
B)Variable cost
C)Mixed cost
D)Fixed cost
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Chapter 20: The Budgeting Process
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Q1) Managers do not need to know why a budget is being prepared,as these are prepared by higher authorities.
A)True
B)False
Q2) Chad has been making skateboards for his friends and now has more orders than he can handle.He has decided to turn the business into a full-time venture and plans to develop the company into a Fortune 500 company.However,he does not have enough cash and has decided to apply for a Small Business Administration loan.The loan officer informed him that she will need to see projected financial statements with supporting schedules for the next 12 months of operations.
a.Identify the financial statements and supporting schedules you believe are appropriate.
b.What information will you need to include in the budgeted financial statements,and where will you get this information?
Q3) In estimating cash receipts and cash payments for the cash budget,many organizations prepare supporting schedules.
A)True
B)False
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Chapter 21: Flexible Budgets and Performance Analysis
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Q1) The economic value added performance measure focuses on long-term financial performance.
A)True
B)False
Q2) When compared with which of the following,the EVA of an investment center will be more meaningful?
A)Target EVAs
B)EVAs from other investment centers
C)EVAs from previous periods
D)All of these choices
Q3) A variable costing income statement is also called a traditional income statement.
A)True
B)False
Q4) Which of the following statements is true of performance measurement?
A)It measures only qualitative information.
B)It uses both qualitative and quantitative tools to measure the performance.
C)It helps in understanding a company's performance related to a specific goal.
D)It cannot be used by service companies.
Q5) Write a brief note on the performance-based pay.
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Chapter 22: Standard Costing and Variance Analysis
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Q1) A direct labor rate variance would occur in which of the following?
A)When a production employee takes an unplanned break
B)When a production employee spends more time producing one product than was expected
C)When a low-paid production employee performs a task higher than his or her assigned level
D)When a production employee incurs overtime hours at the same hourly rate as regular pay
Q2) Variance analysis includes all of the following except
A)taking corrective action.
B)investigating all significant and insignificant variances.
C)developing performance measures to track activities causing the variance.
D)computing variances.
Q3) If the actual amount of direct materials used equals the standard amount of direct materials that should have been used,the difference between the standard cost and actual cost of direct materials is called the
A)price variance.
B)rate variance.
C)quantity variance.
D)efficiency variance.
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Chapter 23: Short-Run Decision Analysis
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Q1) What is the operating income from further processing for Wood Cleaner?
A)$0.25.
B)$0.50
C)$0.75
D)$1.00
Q2) Contribution margin per unit of constrained resources is calculated by dividing contribution margin per unit by quantity of the constrained resources required per unit.
A)True
B)False
Q3) Segment profitability analysis includes the preparation of a segmented income statement.
A)True
B)False
Q4) The costs incurred beyond the split-off point are
A)split-off point costs.
B)incremental costs.
C)joint product costs.
D)period costs.
Q5) What are the two steps in the analysis of a sales mix decision?
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Chapter 24: Capital Investment Analysis
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Q1) If alternatives for an equipment replacement decision affect revenues the same and do not involve cash receipts,its benefits could still be measured by analyzing its
A)cost savings.
B)net cash inflows.
C)net cash outflows.
D)none of these options.
Q2) Which of the following is not an appropriate method used in evaluating proposed capital investments?
A)Net present value
B)Payback period
C)Carrying value of equipment
D)Accounting rate of return
Q3) While making capital investment decisions,companies set a minimum rate of return to
A)set the maximum expected returns.
B)guard their profitability.
C)cover their fixed costs.
D)comply with the government regulations.
Q4) In what situations is the payback period method especially useful?
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Chapter 25: Pricing Decisions, including Target Costing and Transfer Pricing
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Q1) Use of market transfer prices
A)is the only acceptable approach in a free enterprise economy.
B)usually does not cause the selling division to ignore negotiating attempts by the buying division.
C)may cause an internal shortage of materials.
D)usually does not work against the operating objectives of the company as a whole.
Q2) The pricing method that establishes selling prices based on a specified rate of return on the assets employed in the operation is
A)target cost pricing.
B)return on assets pricing.
C)time and materials pricing.
D)gross margin pricing.
Q3) A pricing method based on product cost is
A)cost of goods sold pricing.
B)net income pricing.
C)gross margin pricing.
D)inventory pricing.
Q4) Explain how target costing differs from traditional cost-based pricing methods.
Q5) What are the four pricing rules managers must follow to stay in business?
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Chapter 26: Quality Management and Measurement
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Q1) If a company is spending more on the costs of nonconformance than on the costs of conformance
A)it has a quality problem.
B)quality is integrated into the development and production processes.
C)it is on a positive track.
D)it is serious about customer satisfaction.
Q2) The Baldrige performance criteria focus on a single aspect of quality.
A)True
B)False
Q3) Today's MIS focuses on activities rather than costs.
A)True
B)False
Q4) Quality in manufacturing simply means a product has to be dependable and free of defects.
A)True B)False
Q5) The Six Sigma quality standard was used by Motorola to improve its performance. A)True
B)False
Q6) Describe how MIS aids in the evaluating stage of the management process.
Page 28
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Chapter 27: Accounting for Unincorporated Businesses
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Q1) The division of income is one area in which a partnership differs from a corporation.
A)True
B)False
Q2) Partner X purchases Partner Y's $25,000 interest from Partner Y for $30,000.The entry to record the transaction is for $30,000.
A)True
B)False
Q3) There is no income tax imposed on a partnership.
A)True
B)False
Q4) The salary allocation to partners also appears as Salaries Expense on the partnership income statement.
A)True
B)False
Q5) Partnership liquidation is not the same as partnership dissolution.
A)True
B)False
Q6) List four advantages and four disadvantages of the partnership form of business.
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Chapter 28: Accounting for Investments
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Q1) When a company receives a dividend from its investee,what will be the effect on the financial statements of the investing company if it uses the equity method?
Q2) It is possible that an investor with less than a 50 percent ownership interest may qualify for accounting recognition of control and appropriately prepare consolidated financial statements.
A)True
B)False
Q3) Investments are valued on the balance sheet at the original purchase price,even if the price has changed since the date of purchase.
A)True
B)False
Q4) For available-for-sale securities,an unrealized loss on long-term investments appears as part of other comprehensive income (loss)in the company's financial statements.
A)True
B)False
Q5) How is the purchase of long-term investments in bonds accounted for when purchased between interest payment dates?
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