Accounting for Managers
Exam Answer Key
Course Introduction
Accounting for Managers provides an essential overview of accounting principles and practices from a management perspective. The course focuses on the interpretation and analysis of financial statements, budgeting, cost control, and performance evaluation, equipping managers with the tools needed to make informed business decisions. Through case studies and practical exercises, students learn how to use accounting information for planning, controlling, and strategic decision-making, enabling effective management and value creation within an organization.
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Horngrens Financial and Managerial Accounting The Managerial Chapters 5th Edition by Miller
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Chapter 1: Accounting and the Business Environment
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Q1) The total amount of assets a business possesses may or may not be equal to the total of liabilities and equity of the business.
A)True
B)False
Answer: False
Q2) The income statement presents a summary of an entity's revenues and expenses for a period of time.Which of the following statements is true of an income statement?
A)There is net income when total expenses are greater than total revenues.
B)There is a net loss when total expenses are less than total revenue.
C)There is a net loss when total expenses are greater than total liabilities.
D)There is net income when total revenues are greater than total expenses.
Answer: D
Q3) The statement of retained earnings informs users about how much of the earnings were kept and reinvested in the company.
A)True
B)False
Answer: True
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Chapter 2: Recording Business Transactions
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Q1) A T-account is a summary device with credits posted on the left side of the vertical line.
A)True
B)False
Answer: False
Q2) After initially recording a transaction,the data is then transferred to the ________.
A)chart of accounts
B)ledger
C)trial balance
D)journal Answer: B
Q3) The normal balance of an account is the increase side of the account.
A)True
B)False Answer: True
Q4) In a trial balance,total debits must always equal total credits.
A)True
B)False Answer: True
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) Which of the following accounting elements does the matching principle help to match?
A)revenues and liabilities
B)expenses and assets
C)expenses and revenues
D)expenses and liabilities
Answer: C
Q2) Accumulated Depreciation is a(n)________ account and carries a normal ________ balance.
A)revenue; debit
B)expense; debit
C)contra asset; credit
D)liability; credit
Answer: C
Q3) Recipes,Inc.purchased $2,000 of supplies on account.Under the accrual basis of accounting,no entry is made until the amount is paid.
A)True
B)False
Answer: False
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Chapter 4: Completing the Accounting Cycle
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Q1) Under which of the following categories would Accounts Receivable appear?
A)Current assets
B)Current liabilities
C)Long-term assets
D)Long-term liabilities
Q2) In a balance sheet,assets are classified as either current or long term,depending on their liquidity.
A)True
B)False
Q3) Maywood,Inc.has a current ratio of 6.00.This indicates that the company has $6 in
A)current liabilities for every $1 of current assets
B)total assets for every $1 of current liabilities
C)current assets for every $1 of current liabilities
D)total assets for every $1 of current assets
Q4) The Cash account is a temporary account.
A)True
B)False
Q5) List the steps of the accounting cycle that take place at the end of the period.
Page 6
Q6) List the steps of the accounting cycle that take place during the period.
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Chapter 5: Merchandising Operations
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Q1) When a merchandiser records sales returns,Accounts Receivable is credited.(Assume the seller uses the perpetual inventory system. )
A)True
B)False
Q2) A company purchased inventory for $2,000 from a vendor on account,FOB shipping point,with terms of 2/10,n/30.The company paid $100 cash for freight in.Prepare the journal entry to record payment of the invoice within 10 days by the purchaser.(Assume a perpetual inventory system. )
Q3) Gross profit is calculated as the difference between net sales revenue and
A)purchases
B)cost of goods sold
C)cost of merchandise inventory
D)selling and administrative expenses
Q4) A reduction in the amount of cash received from a customer for early payment is known as a sales discount.
A)True
B)False
Q5) What does the gross profit percentage measure? How is it computed?
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Chapter 6: Merchandise Inventory
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Q1) In a period of rising costs,the last-in,first-out (LIFO)method results in higher cost of goods sold and lower net income than the first-in,first-out (FIFO)method.
A)True
B)False
Q2) The specific identification method of inventory costing is recommended when a business deals in unique and high-priced inventory items.
A)True
B)False
Q3) Universal,Inc.purchased 500 units of inventory at $25 per unit by payment of cash.Provide the journal entry to record the purchase of inventory.(Assume a perpetual inventory system. )
Q4) An overstatement of ending merchandise inventory in the current period results in an overstatement of net income in the current period.
A)True
B)False
Q5) What does inventory turnover measure? What does a low rate of inventory turnover indicate?
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Chapter 7: Internal Control and Cash
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Q1) The cash balance in a company's general ledger and the bank's balance on the bank statement will always be the same.
A)True
B)False
Q2) If the bank reconciliation includes a deposit in transit,a journal entry is required that includes a debit to cash.
A)True
B)False
Q3) An imprest system is a way to account for petty cash by maintaining a constant balance in the petty cash account.Cash plus petty cash tickets total the amount allocated to the petty cash fund.
A)True
B)False
Q4) The party who issues a check is the maker.
A)True
B)False
Q5) The payee is the issuer of a check.
A)True
B)False
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Chapter 8: Receivables
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Q1) At the beginning of 2017,Brady,Inc.has the following account balances: Accounts Receivable $43,000 (Debit) Allowance for Bad Debts $8,000 (Credit) Bad Debts Expense $0
During the year,credit sales amounted to $840,000.Cash collected on credit sales amounted to $790,000,and $17,000 has been written off.At the end of the year,the company adjusted for bad debts expense using the percent-of-sales method and applied a rate,based on past history,of 2.5%.The amount of bad debts expense for 2017 is
A)$21,000
B)$41,825
C)$17,000
D)$12,000
Q2) The net realizable value of Accounts Receivable is calculated by subtracting Bad Debts Expense from Accounts Receivable. A)True B)False
Q3) What is net realizable value? How is net realizable value affected when a receivable is written off under the allowance method?
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Chapter 9: Plant Assets, natural Resources, and Intangibles
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Q1) Fred,Inc.owns a delivery truck.Which of the following costs,associated with the truck,will be capitalized and depreciated?
A)modification for new use
B)change of oil filters
C)replacement of tires
D)normal engine repair
Q2) O'Reilly Corp.purchased a mine on January 1,2016,for $530,000.The mine is estimated to contain 39,000 tons of iron ore.There is no residual value.The business extracted and sold 9,500 tons of ore in 2016 and 13,800 tons of ore in 2017.What is the book value of the mine at the end of 2017? (Round any intermediate calculations to two decimal places,and your final answer to the nearest dollar. )
A)$452,000
B)$213,353
C)$371,000
D)$530,000
Q3) If a plant asset is sold for more than its book value,a loss is recorded.
A)True
B)False
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Chapter 10: Investments
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Q1) Which of the following is true of the Fair Value Adjustment account for trading investments?
A)It will always have a credit balance.
B)It will always have a debit balance.
C)It is considered as an adjunct account if it has a credit balance.
D)It is considered as an adjunct account if it has a debit balance.
Q2) When a loss is recorded on the sale of a significant interest investment,________.
A)total assets will increase
B)equity will increase
C)total assets will decrease
D)equity will remain unchanged
Q3) Significant interest investments must be accounted for using the ________.
A)equity method
B)consolidation method
C)discounted cash flow method
D)acquisition method
Q4) List and briefly describe the method used to account for investments in equity securities with 50% or more ownership.
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Chapter 11: Current Liabilities and Payroll
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Q1) Federal unemployment compensation tax is paid by the employer and is not deducted from an employee's gross earnings.
A)True B)False
Q2) If a contingency is remote,the company does not need to record a liability and does not need to disclose it in the notes to the financial statements.
A)True B)False
Q3) State unemployment compensation tax (SUTA)is paid by the employer and is not deducted from an employee's gross earnings.
A)True
B)False
Q4) Which of the following is included in the entry to record the employer's payroll taxes?
A)a debit to State Unemployment Tax Payable
B)a credit to Payroll Tax Expense
C)a credit to FICA-OASDI Tax Payable
D)a credit to Salaries Payable
Q5) What is a contingent liability? Provide two examples of contingencies.
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Chapter 12: Long-Term Liabilities
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Q1) Discount on Bonds Payable is additional Interest Expense of the company that issues the bond.
A)True
B)False
Q2) On January 1,2017,Shea Landscaping borrowed $100,000 on a 15%,10-year note with annual installment payments of $10,000 plus interest due on December 31 of each year.Prepare the journal entry for the first installment payment made on December 31,2017.
Q3) When using the effective-interest amortization method,the discount amortization is the excess of the calculated interest payment over the interest payment.
A)True
B)False
Q4) The main reason companies retire bonds prior to their maturity date is to relieve the pressure of paying interest payments.
A)True
B)False
Q5) On January 1,2017,NOLA Services issued $20,000 of 8% bonds that mature in five years.The bonds were issued for $20,750.Prepare the journal entry to issue bonds.
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Chapter 13: Stockholders Equity
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Q1) A small stock dividend,a large stock dividend and a stock split have no effect on total assets.
A)True
B)False
Q2) Jenkins Realty,Inc.issued 7,000 shares of $9 stated value common stock for $16 per share.The journal entry to record this transaction includes a credit to ________.
A)Common Stock for $112,000
B)Paid-In Capital in Excess of Stated - Common for $63,000
C)Common Stock - $9 Stated Value for $49,000
D)Paid-In Capital in Excess of Stated - Common for $49,000
Q3) When a previously declared dividend is paid,which of the following occurs?
A)assets increase
B)stockholders' equity increases
C)liabilities decrease
D)assets remain unchanged
Q4) Treasury stock is a contra equity account.
A)True
B)False
Q5) List the four basic rights of stockholders.
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Chapter 14: The Statement of Cash Flows
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Q1) One of the purposes of the statement of cash flows is to ________.
A)determine the operating income of a business
B)to calculate inventory turnover
C)evaluate the level of debt and leverage of a company
D)predict the ability of a company to pay debts and dividends
Q2) Rubin Installations Company uses the direct method to prepare its statement of cash flows.Rubin has reported cost of goods sold of $95,000 on its income statement for 2017.If the balance in the Merchandise Inventory account decreased by $6,000 during the year,then $6,000 needs to be added to $95,000 to calculate payments to suppliers for inventory purchases.
A)True
B)False
Q3) The payment of interest on a loan is considered a ________ on a statement of cash flows prepared using the direct method.
A)cash outflow for operating activities
B)cash outflow for investing activities
C)cash outflow for financing activities
D)non-cash activity
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Chapter 15: Financial Statement Analysis
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Q1) Annual reports ________.
A)are required to be prepared by every corporation
B)discuss the company's competitors and the risks related to the company's business
C)are also called a Form 10-Q
D)only include the company's financial statements
Q2) A high times-interest-earned ratio indicates difficulty in paying interest expense.
A)True
B)False
Q3) Which of the following statements,regarding the management's discussion and analysis (MD&A)part of the annual report is not correct?
A)Investors are not interested in the MD&A because it is written by the company and could present a biased view of the company's financial condition and result.
B)It often contains information that is not found in the financial data.
C)It provides forward-looking formation.
D)The MD&A is the company's attempt to explain its financial statements and to discuss its performance.
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Chapter 16: Introduction to Managerial Accounting
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Q1) For decision-making purposes,________ costs are often divided into prime costs and conversion costs.
A)fixed costs
B)product costs
C)period costs
D)sunk costs
Q2) Management accountability is the manager's responsibility to the various stakeholders of the company to maximize profits.
A)True
B)False
Q3) Managerial accounting can be used to calculate costs for service and merchandising companies.
A)True
B)False
Q4) Which of the following is a product cost?
A)sales commissions
B)CEO's salary
C)delivery van depreciation
D)depreciation on production equipment
Q5) Describe the flow of product costs for a manufacturer.
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Chapter 17: Job Order Costing
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Q1) Gill Manufacturing uses a predetermined overhead allocation rate based on a percentage of direct labor cost.At the beginning of the year,Gill estimated total manufacturing overhead costs at $1,010,000 and total direct labor costs at $840,000.In June,Gill completed Job 511.The details of Job 511 are shown below.(Round to 2 decimal places. ) \[\begin{array} { | l | r | }
\hline \text { Direct materials cost } & \$ 23,500 \\
\hline \text { Direct labor cost } & \$ 13,000 \\
\hline \text { Direct labor hours } & 300 \text { hours } \\
\hline \text { Units of product produced } & 500 \text { units } \\ \hline
\end{array}\] How much was the total job cost of Job 511? (Round any percentages to two decimal places and your final answer to the nearest dollar. )
A)$36,860
B)$52,100
C)$64,700
D)$37,100
Q2) Leonard Manufacturing Systems uses job order costing and a perpetual inventory system.When recording the sale of a job,which account(s)is(are)debited?
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Chapter 18: Process Costing
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Q1) Under process costing,the unit cost of the completed units is less than the unit cost of the incomplete units.
A)True
B)False
Q2) A process costing system is generally used by companies that produce homogeneous products.
A)True
B)False
Q3) The Assembly Department of Intuitive,Inc. ,manufacturer of computers,had 4,500 units of beginning inventory in September,and 3,000 units were transferred to it by the Production Department.The Assembly Department completed 1,500 units during the month and transferred them to the Packaging Department.Calculate the total number of units accounted for by the Assembly Department if it had 6,000 units in ending inventory.The weighted-average method is used.
A)6,000 units
B)3,000 units
C)4,500 units
D)7,500 units
Q4) How is a production cost report prepared using the FIFO method?
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Chapter 19: Cost Management Systems: Activity-Based,
just-In-Time, and Quality Management Systems
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Q1) Target cost is calculated by deducting desired gross profit from target sales price.
A)True
B)False
Q2) Alfeo Corporations has adopted a JIT management system and has the following transactions in February:
Feb 2 Incurred labor and overhead costs, $89,000
Feb 18 Completed 750 units with standard costs of \(\$ 93\) for direct materials and \(\$ 146\) for conversion costs Open a T-account for Conversion Costs.Post appropriate entries to determine the amount of underallocated or overallocated overhead.Record the adjusting entry.
Q3) Caprice,Inc.has adopted a JIT management system and has the following transactions in December:
Dec 3 Purchased raw materials on account, \( \$ 80,000 \)
Dec 8 Incurred labor and overhead costs, \( \$ 105,000 \)
Dec 15 Completed 750 units with standard costs of \( \$ 106 \) for direct materials and \( \$ 165 \) for conversion costs
Dec 23 Sold 650 units for \( \$ 395 \) each
Record the journal entries for Caprice,Inc.for December.
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Chapter 20: Cost-Volume-Profit Analysis
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Q1) Increases in total fixed cost ________ contribution margin per unit and ________ the breakeven point.
Q2) Browning Company sells two products-X and Y.Product X is sold for $30 per unit and has a variable cost per unit of $15.Product Y is sold for $30 per unit and has a variable cost of $10 per unit.Total fixed costs for the company are $20,000.Browning Company typically sells three units of Product X for every unit of Product Y.What is the breakeven point in total units? (Round any intermediate calculations to two decimal places,and your answer to the nearest unit. )
A)1,231 units
B)923 units
C)308 units
D)1,333 units
Q3) When the total variable costs are deducted from total mixed costs,we obtain
A)mixed cost per unit
B)variable cost per unit
C)total high-low costs
D)total fixed costs
Q4) How is the unit contribution margin calculated?
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Chapter 21: Variable Costing
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Q1) A business segment is an identifiable part of the company for which financial information is available.
A)True
B)False
Q2) Period costs under the variable costing method include ________.
A)variable manufacturing overhead
B)variable selling and administrative costs
C)direct materials
D)direct labor
Q3) Gross profit is calculated by deducting ________ from sales revenue.
A)total fixed costs
B)cost of goods sold
C)total variable costs
D)selling and administrative costs
Q4) Absorption costing considers direct materials,direct labor,variable manufacturing overhead,and fixed manufacturing overhead as product costs.
A)True
B)False
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Chapter 22: Master Budgets
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Q1) The inventory,purchases,and cost of goods sold budget determines cost of goods sold for the budgeted income statement,ending Merchandise Inventory for the budgeted balance sheet,and merchandise inventory purchases for the cash budget.
A)True
B)False
Q2) When preparing the operating budgets for a manufacturing company,the manufacturing overhead budget ________.
A)represents the last period cost to be considered B)only includes variable manufacturing overhead
C)only computes the budgeted overhead cost for the year
D)includes costs that are projected by the cost accountant and the production manager
Q3) Which of the following is true of the sales budget?
A)It provides sales data that is used to prepare financial statements for external reporting purposes.
B)It captures the variable and fixed expenses of the business.
C)It is used in the production budget.
D)It shows the cost of expected production in a period.
Q4) What is a common method of accessing short-term financing?
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) In a standard costing system,each input of direct materials,direct labor,and manufacturing overhead has a cost standard and an efficiency standard.
A)True
B)False
Q2) A company is analyzing its month-end results by comparing it to both static and flexible budgets.During the previous month,the actual variable costs per unit were lower than the expected variable costs per unit as per the static budget.This difference results in a(n)________.
A)favorable flexible budget variance for variable costs
B)favorable sales volume variance for variable costs
C)unfavorable flexible budget variance for variable costs
D)unfavorable sales volume variance for variable costs
Q3) Which of the following is a reason companies use standard costs?
A)to enhance customer loyalty
B)to set sales prices of products and services
C)to share best practices with other companies
D)to ensure the accuracy of the financial records
Q4) What does the fixed overhead cost variance measure?
Q5) List the direct labor variances and briefly describe each.
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Chapter 24: Responsibility Accounting and Performance Evaluation
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Q1) Carey,Inc.provides the following information: \[\begin{array} { | l | r | }
\hline \text { Profit margin ratio } & 5 \% \\
\hline \text { Asset turnover ratio } & 2 \text { times } \\
\hline \text { Net sales } & \$ 450,000 \\
\hline \text { Target rate of return } & 9 \% \\
\hline
\end{array}\] Calculate the return on investment.
A)10%
B)45%
C)4%
D)14%
Q2) A lag indicator is a performance measure that forecasts future performance.
A)True
B)False
Q3) Which of the following is a disadvantage of decentralization?
A)It results in increased customer response time.
B)It allows only the top management to make decisions.
C)It does not motivate employees because the decision-making powers are not delegated.
Page 26
D)It results in problems with achieving goal congruence.
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Chapter 25: Short-Term Business Decisions
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Q1) Clay Corporation manufactures two styles of lamps-a Bedford Lamp and a Lowell Lamp.The following per unit data are available: \[\begin{array} { | l | r | r | }
\hline & \text { Bedford Lamp } & \text { Lowell Lamp } \\
\hline \text { Sales price } & \$ 27 & \$ 35 \\
\hline \text { Variable costs } & \$ 17 & \$ 22 \\
\hline \text { Machine hours required for one lamp } & 2 & 4 \\
\hline
\end{array}\] Total fixed costs are $30,000,and Clay can sell a maximum of 10,000 units of each style of lamp annually.Machine hour capacity is 25,000 hours per year.What is the contribution margin per machine hour for the Bedford Lamp? (Round your answer to the nearest cent. )
A)$5.00 per machine hour
B)$3.25 per machine hour
C)$13.50 per machine hour
D)$17.50 per machine hour
Q2) Companies that are price-takers have considerable flexibility in setting the prices of their products.
A)True
B)False
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Chapter 26: Capital Investment Decisions
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Q1) Which of the following is the rate of return,based on discounted cash flows,a company can expect to earn by investing in a capital asset?
A)accounting rate of return
B)bank interest rate
C)internal rate of return
D)return on investment
Q2) Capital budgeting involves ________.
A)budgeting for yearly operational expenses
B)preparing the sales budget for the coming year
C)deciding among various long-term investments
D)analyzing various alternatives of financing available to a company
Q3) Managers generally use payback as the sole method for deciding whether to invest in an asset.
A)True
B)False
Q4) Under what circumstances is the investment with the shortest payback the best choice? How should managers use the payback method?
Q5) List two strengths and one weakness of the accounting rate of return capital budgeting method.
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Chapter 27: Accounting Information Systems
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Q1) Which of the following is true of a network?
A)It connects a computer's hardware to the software.
B)It does not link computers.
C)It is the same as software.
D)It allows different computers to share the same information.
Q2) A subsidiary ledger is a record of accounts that provides supporting details on individual balances,the total of which appears in a general ledger account.
A)True
B)False
Q3) An accounting information system collects,records,stores,and processes accounting data to produce information that is useful for decision makers.
A)True
B)False
Q4) In an accounting information system,outputs are the reports used for decision making,which include the financial statements.
A)True
B)False
Q5) Describe the transactions recorded in the purchases journal.
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