Accounting for Managers
Final Test Solutions
Course Introduction
Accounting for Managers provides an essential overview of accounting principles and practices tailored for managerial decision-making. The course explores the interpretation and application of financial statements, cost analysis, budgeting, and performance evaluation, equipping managers with the financial acumen needed to plan, control, and assess business operations. Emphasis is placed on the use of accounting information for strategic planning, operational control, and effective communication with stakeholders, enabling students to make informed decisions that drive organizational success.
Recommended Textbook
Horngren's Financial and Managerial Accounting 6th Edition by Tracie L. Miller Nobles
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Chapter 1: Accounting and the Business Environment
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Sample Questions
Q1) Adventures Unlimited Company distributes cash dividends. How does this transaction affect the accounting equation?
A) The assets, liabilities, and equity remain the same.
B) The assets decrease and equity decreases.
C) The assets increase and liabilities decrease.
D) The assets decrease and equity increases.
Answer: B
Q2) Financial accounting focuses on information for decision makers outside of the business, such as creditors and taxing authorities.
A)True
B)False
Answer: True
Q3) Which of the following appears on both the income statement and statement of retained earnings?
A) Ending stockholders' equity
B) Total revenues
C) Net income
D) Dividends
Answer: C
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Page 3
Chapter 2: Recording Business Transactions
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Sample Questions
Q1) Ranger Pool Company received cash of $40,000 and issued common stock. Which of the following accounts will be credited?
A) Accounts Receivable
B) Cash
C) Common Stock
D) Accounts Payable
Answer: C
Q2) Accounts Payable is a(n) ________ account and has a normal ________ balance.
A) liability; debit
B) asset; debit
C) liability; credit
D) asset; credit
Answer: C
Q3) In reviewing the T-account for Accounts Payable, you find that the beginning balance is zero, the total increases are $7,900 and the total decreases are $4,200. This means that the ending balance of the account is a credit balance of $3,700.
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 is NOT a type of adjusting entry?
A) deferred expenses
B) accrued revenues
C) unearned expenses
D) deferred revenues
Answer: C
Q2) In the case of deferred revenue, the adjusting entry at the end of the period includes a credit to Service Revenue. Assume the deferred revenue is initially recorded as a liability.
A)True
B)False
Answer: True
Q3) Accrual basis accounting requires the business to review the unadjusted trial balance and determine whether any additional revenues and expenses need to be recorded.
A)True
B)False
Answer: True
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Which of the following is an example of an intangible asset?
A) Equipment
B) Plant
C) Property
D) Copyright
Q2) A worksheet is a substitute for the financial statements.
A)True
B)False
Q3) Which of the following accounts will be included in a post-closing trial balance?
A) Dividends
B) Salaries Expense
C) Common Stock
D) Supplies Expense
Q4) When preparing a worksheet, net income is recorded in the ________.
A) income statement credit column
B) adjusted trial balance debit column
C) income statement debit column
D) balance sheet debit column
Q5) 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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Sample Questions
Q1) Which of the following line items would appear on the income statement of a company that uses the periodic inventory system, but not on that of a company that uses the perpetual inventory system?
A) Net Sales Revenue
B) Cost of Goods Sold
C) Cost of Goods Available for Sale
D) Operating Expenses
Q2) A company has purchased inventory and received an invoice that requires the buyer to pay the transportation costs for delivering the merchandise. The terms are
A) FOB destination
B) FOB shipping point
C) FOB, 2/10, n/30
D) FOB in transit
Q3) A company using the perpetual inventory system purchased merchandise on account for $5,000. Give the journal entry to record this transaction. Omit explanation.
Q4) On the balance sheet, Merchandise Inventory is listed above Accounts Receivable.
A)True
B)False
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Chapter 6: Merchandise Inventory
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Q1) When inventory costs are declining, which of the following inventory costing methods will result in the highest cost of goods sold?
A) first-in, first-out
B) last-in, first-out
C) weighted-average
D) specific identification
Q2) Companies often disclose that the LCM rule is followed in notes to their financial statements.
A)True
B)False
Q3) The days' sales in inventory ratio is calculated by dividing cost of goods sold by the average merchandise inventory.
A)True
B)False
Q4) Two ratios that help businesses monitor their inventory levels are days' sales in inventory and the inventory level ratio.
A)True
B)False
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Chapter 7: Internal Control and Cash
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Sample Questions
Q1) Public companies ________.
A) must issue an internal control report which states that the outside auditor is responsible for the adequacy of internal controls
B) are audited by accounting firms that do not also provide certain consulting services to the public company
C) are required by the Financial Accounting Standards Board to maintain a system of internal controls
D) are overseen by the Public Company Accounting Oversight Board
Q2) A check for which a maker's bank account has inadequate money to pay the check is known as a(n) ________.
A) nonsufficient funds check
B) outstanding check
C) restrictive check
D) canceled check
Q3) In a bank reconciliation, outstanding checks will be shown on the bank side of the reconciliation.
A)True
B)False
Q4) Define internal control.
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Chapter 8: Receivables
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Sample Questions
Q1) Under the direct write-off method, the entry to write off an uncollectible account will include ________.
A) a debit to Bad Debts Expense account
B) a debit to the customer's Account Receivable
C) a credit to the Allowance for Bad Debts
D) No entry is made to write off uncollectible accounts.
Q2) On January 16, Half Circle, Inc. sold $5,000 of merchandise to Arnold, on account. Half Circle could not collect cash from Arnold and wrote off the account. Prepare a journal entry to record the write-off, assuming Half Circle uses the allowance method. Omit explanation.
Q3) On October 1, 2020, Jewelry Specialists, Inc. made a loan to one of its customers. The customer signed a 6-month note for $120,000 at 15%. Calculate the total interest earned on the note. (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)
A) $9,000
B) $4,500
C) $1,500
D) $18,000
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Page 10
Chapter 9: Plant Assets, Natural Resources, and Intangibles
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Sample Questions
Q1) In 2018, a corporation purchased a small business for $250,000. The market value of the small business's assets was $400,000, and the market value of the liabilities was $200,000. The corporation recorded goodwill of $50,000 at the time of acquisition. At the end of 2019, it measured goodwill and found it had a remaining fair value of only $20,000. At year-end 2019, the corporation will ________.
A) record a loss on sale of assets
B) record an impairment loss
C) record accumulated depletion
D) record a gain in goodwill
Q2) On January 1, 2018, Dalton Manufacturing Corporation purchased a machine for $40,000,000. The corporation expects to use the machine for 24,000 hours over the next six years. The estimated residual value of the machine at the end of the sixth year is $40,000. The corporation used the machine for 3,600 hours in 2018 and 5,000 hours in 2019. Calculate depreciation expense for 2019 if the company uses the units-of-production method of depreciation.
Q3) Dynasty Corp sold a truck for $15,000 cash. It was originally purchased for $50,000 and had accumulated depreciation of $30,000 at the time of sale. Prepare the journal entry for the sale of truck. Omit explanation.
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Chapter 10: Investments
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Sample Questions
Q1) At the beginning of the year, Wilson Steel, Inc. purchased 10,000 shares of Barnes Metals, Inc. for $34,000 in exchange for cash and now holds 3.2% of the voting stock of Barnes Metals, Inc. The management of Wilson Steel intends to hold this stock for two years. Assuming no other transaction happened during the year, the ________ in the balance sheet will increase.
A) long-term assets
B) cash
C) total assets
D) current assets
Q2) A(n) ________ is represented by a certificate and is commonly traded on an exchange.
A) inventory
B) investee
C) interest
D) security
Q3) When a company invests in equity securities with 20% to 50% ownership in the investee's voting stock, the investor can significantly influence the investee's decisions.
A)True
B)False
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Page 12
Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) If the likelihood of a future event is probable and the amount of the expense can be estimated, how should the company report the contingency?
Q2) Current liabilities must be paid either in cash or with goods and services within one year or within the entity's operating cycle, if the cycle is longer than a year.
A)True
B)False
Q3) Preston Sales, Inc. has gross salaries and wages for March of $45,000. Provide the journal entry to record salaries and wages expense and payroll withholdings. (Assume a FICA-OASDI Tax of 6.2% and FICA-Medicare Tax of 1.45%.) Salaries and wages to date are under the OASDI limit. Assume no federal or state income taxes are due. Salaries and wages will be paid at a later date. Omit explanation.
Q4) When determining how businesses record or do not record contingent liabilities, which is not one of the three likelihoods that that are considered?
A) remote
B) reasonably probable
C) probable
D) reasonably possible
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Chapter 12: Long-Term Liabilities
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Sample Questions
Q1) On May 1, 2018, Plumbing Services issued a long-term note payable for $35,000. The note will be paid over five-years with annual principal payments of $7,000, plus interest, on May 1 of each year beginning on May 1, 2019. Prepare the journal entry for the issuance of the note. Omit explanation.
Q2) Alden Corp. has the following balances as of December 31, 2019: \[\begin{array} { | l | r | }
\hline \text { Total Assets } & \$ 110,000 \\
\hline \text { Total Liabilities } & 67,000 \\
\hline \text { Total Equity } & 43,000 \\
\hline
\end{array}\] Calculate the debt to equity ratio. (Round your answer to two decimal points.)
A) 0.64
B) 0.92
C) 1.56
D) 2.56
Q3) Define financial leverage and discuss how it is used to increase earnings per share.
Q4) What is the only difference between present value and future value?
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Page 14
Chapter 13: Stockholders Equity
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Sample Questions
Q1) A company may purchase treasury stock to increase net assets by buying high and selling low.
A)True
B)False
Q2) Which of the following statements, regarding no-par stock, is incorrect?
A) Regardless of the stock's issue price, Cash is debited and Common Stock is credited for the cash received.
B) There can be no Paid-In Capital in Excess of Par.
C) There is no par to be in excess of.
D) All of the statements are correct.
Q3) Restrictions on retained earnings are ________.
A) reported on the statement of cash flows
B) usually reported in the notes to the financial statements
C) reported on the income statement
D) designed to maximize dividends paid to shareholders
Q4) On the ________, cash dividends become a liability of a corporation.
A) declaration date
B) date of record
C) last day of the fiscal year
D) payment date
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Chapter 14: The Statement of Cash Flows
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Sample Questions
Q1) Specialty Auto Parts Company uses the indirect method to prepare its statement of cash flows. Refer to the following information for 2018: Net cash provided by operating activities: $108,000
Net cash used for investing activities: $(118,500)
Net cash provided by financing activities: $16,000 If the cash balance at the beginning of the year was $13,200, what is the ending cash balance?
A) $18,700
B) $5500
C) $13,200
D) $10,500
Q2) The direct method starts with net income and adjusts it to net cash provided by operating activities.
A)True
B)False
Q3) The statement of cash flows shows where cash came from and how cash was spent. A)True
B)False
Q4) What does free cash flow represent? How is it used to evaluate business performance?
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Chapter 15: Financial Statement Analysis
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Sample Questions
Q1) A quarterly report filed with the Securities and Exchange Commission is called a Form 10-K.
A)True B)False
Q2) Sapphire Corp. reported the following revenues and net income amounts. \(\begin{array}{llllll} & \underline{2019} & \underline{2018} & \underline{2017} & \underline{2016} & \underline{2015} \\
\text { Revenue } & \$ 728 & \$ 675 & \$ 500 & \$ 485 & \$ 452 \\ \text { Cost of goods sold }&650 & 602 & 456 & 403 & 398 \end{array}\) Calculate Sapphire's trend analysis for revenues and cost of goods sold. Use 2015 as the base year, and round to the nearest percent.
Q3) Trend analysis is a form of horizontal analysis.
A)True B)False
Q4) The horizontal analysis of the balance sheet shows the changes in net sales and net income.
A)True B)False
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Chapter 16: Introduction to Managerial Accounting
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Sample Questions
Q1) Lakeshore Manufacturing provided the following information for the month ended March 31: \[\begin{array} { | l | r| }
\hline \text { Sales Revenue } & \$ 30,000 \\
\hline \text { Beginning Finished Goods Inventory } & 17,000 \\
\hline \text { Ending Finished Goods Inventory } & 11,500 \\
\hline \text { Cost of Goods Manufactured } & 12,600 \\
\hline
\end{array}\] Compute gross profit.
A) $11,900
B) $17,400
C) $22,900
D) $5900
Q2) Describe the flow of product costs for a manufacturer.
Q3) At the end of the year, Mary's supervisor asked her to record sales transactions for products that would not ship until the following year, and she complied. Mary has violated IMA ethical standards.
A)True
B)False
Q4) Define direct cost.
Q5) Define indirect cost.
Page 18
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Chapter 17: Job Order Costing
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Q1) During the year, a company incurred $494,000 of manufacturing overhead costs and allocated $508,000 of manufacturing overhead costs. At the year-end, the adjustment entry needed to adjust the Manufacturing Overhead account balance to zero will include a debit to Cost of Goods Sold.
A)True
B)False
Q2) Divit has been given the task of calculating the predetermined overhead rate for Eden Enterprises. In order to calculate the rate, Divit must know ________.
A) the estimated overhead costs for the period and the actual quantity of the overhead allocation base
B) the estimated overhead costs for the period and the estimated quantity of the overhead allocation base
C) the actual overhead costs for the period and the actual quantity of the overhead allocation base
D) the actual overhead costs for the period and the estimated quantity of the overhead allocation base
Q3) Define a job order costing system and list two types of businesses that would use a job order costing system.
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Chapter 18: Process Costing
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Sample Questions
Q1) The Assembling Department of Weathercoat Liners, Inc. had 8000 units in process on December 1 and received 15,000 units from the Sewing Department. The company uses FIFO. Calculate the number of units to account for by the Assembling Department for December.
A) 23,000 units
B) 15,000 units
C) 8000 units
D) 7000 units
Q2) Under process costing, the total production costs incurred in each process must be split between the units that have been completed in that process and transferred to the next process and the ________.
A) Finished Goods Inventory if it is the first process
B) units not completed and remaining in Work-in-Process Inventory for that department
C) Cost of Goods Sold when the units are sold
D) Work-in-Process Inventory of the previous department when there are no sales
Q3) What does the concept of equivalent units of production allow businesses to measure?
Q4) How is a production cost report prepared using the FIFO method?
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Page 20
Chapter 19: Cost Management Systems: Activity-Based
Just-In-Time
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Q1) Activity-based costing uses a common allocation base for all activities.
A)True
B)False
Q2) Under the just-in-time costing system, underallocated and overallocated conversion costs are treated just like underallocated and overallocated manufacturing overhead.
A)True
B)False
Q3) What is a quality management system? What is the common factor in all quality management systems?
Q4) Stealth, Inc. produces two types of drones, rotary and fixed wing. Stealth estimated $765,000 of manufacturing overhead, and 51,000 machine hours for the year. The allocation base for overhead costs is machine hours.The rotary model actually consumed 21,000 machine hours, and the fixed wing type consumed 30,000 machine hours. How much overhead is allocated to the fixed wing model?
A) $315,000
B) $450,000
C) $210,000
D) $150,000
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Chapter 20: Cost Volume Profit Analysis
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Sample Questions
Q1) Colossal Beverages Company sells two products, A and B. Mist predicts that it will sell 2500 units of A and 2000 units of B during the next period. The unit contribution margins are $4.00 and $4.80 for products A and B, respectively. What is the weighted-average unit contribution margin? (Round your answer to the nearest cent.)
A) $4.36
B) $4.40
C) $4.44
D) $8.80
Q2) Fixed cost per unit is assumed to be constant within a particular relevant range of activity.
A)True
B)False
Q3) Which of the following is an example of a cost that does NOT change in total over wide ranges of volume or activity?
A) the company president's salary
B) cloth used to make shirts
C) bottles used in a beverage company
D) hourly wages for production line workers
Q4) List the cost-volume-profit (CVP) assumptions.
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Chapter 21: Variable Costing
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Q1) Absorption costing considers direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead as product costs.
A)True
B)False
Q2) Which of the following is true of the traditional format of the income statement?
A) It is prepared under the variable costing method.
B) It shows contribution margin as a line item.
C) It is not allowed under GAAP.
D) It is prepared under the absorption costing method.
Q3) Some costs are not controllable in the long run. However, in the short run, all costs are controllable.
A)True
B)False
Q4) The contribution margin for service companies is calculated by subtracting fixed costs from service revenue.
A)True
B)False
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Chapter 22: Master Budgets
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Q1) The budgeted multi-step income statements of both manufacturing and merchandising companies include the calculation of gross profit.
A)True B)False
Q2) The most important part of a budgeting system is getting managers and employees to accept the budget.
A)True B)False
Q3) To develop the cost of goods sold budget, it is necessary to start by calculating the projected cost to produce each unit.
A)True
B)False
Q4) For a merchandising company, the selling and administrative expense budget separates fixed and variable expenses.
A)True B)False
Q5) A master budget is a financial plan for a specific segment of an organization. A)True B)False
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) An unfavorable sales volume variance in operating income suggests a(n)
A) increase in number of actual units sold when compared to the expected number of units sold
B) decrease in number of actual units sold when compared to the expected number of units sold
C) increase in variable cost per unit
D) decrease in fixed costs
Q2) List the direct labor variances and briefly describe each.
Q3) List three ways in which using a standard cost system helps managers.
Q4) For each of the following variances, state which manager is most likely to be responsible for the variance.
\[\begin{array} { | l | l | }
\hline \text { Variance } & \text { Responsible Manager } \\
\hline \text { Direct Materials Efficiency } & \\
\hline \text { Direct Labor Cost } & \\
\hline \text { Variable Overhead Efficiency } & \\
\hline
\end{array}\]
Q5) What does the variable overhead cost variance measure?
Q6) List the direct materials variances, and briefly describe each.
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Chapter 24: Responsibility Accounting and Performance Evaluation
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Q1) Return on investment measures the profitability of an investment center but not the efficiency in using its assets.
A)True
B)False
Q2) The production line of a manufacturing company is most likely to be considered to be a(n) ________.
A) cost center
B) profit center
C) revenue center
D) investment center
Q3) The level of employee satisfaction is a key performance indicator of the ________ perspective of a balanced scorecard.
A) financial
B) learning and growth
C) internal business
D) customer
Q4) A lag indicator is a performance measure that forecasts future performance.
A)True
B)False
Page 26
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Chapter 25: Short-Term Business Decisions
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Q1) When considering whether to replace the building roof, the total amount paid for previous roof repairs is relevant to the business decision.
A)True
B)False
Q2) Effie Corporation produces two products, P and Q. P sells for $8.00 per unit; Q sells for $6.00 per unit. Variable costs for P and Q are $2.00 and $5.00, respectively. There are 7300 direct labor hours per month available for producing the two products. Product P requires 2.00 direct labor hours per unit, and product Q requires 4.00 direct labor hours per unit. The company can sell as many of either product as it can produce. What is the maximum monthly contribution margin that Effie can generate under the circumstances? (Round your answer to nearest whole dollar.)
A) $21,900
B) $3650
C) $43,800
D) $7300
Q3) A customer of Cooke Manufacturing has requested a one-time order at a reduced sales price. Before making the special pricing decision, what are three questions that management of Cooke Manufacturing must consider?
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Chapter 26: Capital Investment Decisions
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Q1) Which of the following is a capital budgeting method that ignores the time value of money?
A) payback
B) internal rate of return
C) return on assets
D) net present value
Q2) All of the following are factors needed when calculating the future value of money except
A) the principal amount
B) the number of periods
C) the maturity value
D) the interest rate
Q3) An operational asset used for a long period of time is known as a capital asset.
A)True
B)False
Q4) An annuity is a stream of equal cash payments made at equal time intervals.
A)True
B)False
Q5) If the net cash inflows are unequal, how is the payback period (in years) of an investment calculated?
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Chapter 27: Understanding Accounting Information Systems
and their Components
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Q1) Examples of source documents in an accounting information system include the statement of cash flows and sales journal.
A)True
B)False
Q2) Which of the following is a disadvantage of enterprise resource planning (ERP) systems?
A) It is not beneficial to large corporations.
B) It is not supported by cloud computing.
C) Its implementation requires a large commitment of time and people.
D) It uses separate software systems, such as sales and payroll.
Q3) The main computer where data are stored, which can be accessed from many different computers, is known as software.
A)True
B)False
Q4) Adjusting entries are recorded in the ________.
A) cash payments journal
B) purchases journal
C) cash receipts journal
D) general journal
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