Accounting for Managers Review Questions
Course Introduction
Accounting for Managers is designed to equip future business leaders with a comprehensive understanding of accounting principles and their practical application in managerial decision-making. The course covers fundamental topics such as financial statement analysis, budgeting, cost behavior, performance measurement, and internal controls. Emphasis is placed on interpreting accounting data to inform planning, controlling, and strategic decision processes within organizations. By integrating real-world case studies and problem-solving exercises, students will learn how to use accounting information to support effective management and enhance organizational value.
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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) Glendale Corporation had the following transactions in August: Earned $5,000 of revenues on account; collected $5,000 from a customer for services provided last month; incurred $500 of repair expense and paid cash; paid $600 for rent that it owed from the previous month.
What is the net income in August?
A)$500
B)$5,000
C)$9,500
D)$4,500
Answer: D
Q2) Which of the following financial statements reports cash receipts and cash payments during a period of time?
A)Statement of cash flows
B)Balance sheet
C)Cash receipts budget
D)Statement of retained earnings
Answer: A
Q3) What is the calculation for return on assets (ROA)? What does ROA measure?
Answer: Return on Assets = Net income / Average total assets. ROA measures how profitably a company uses its assets.
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Chapter 2: Recording Business Transactions
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Q1) A business receives $40,000 for services that it will perform over the next four months.Which of the following accounts is credited?
A)Cash
B)Accounts Payable
C)Service Revenue
D)Unearned Revenue
Answer: D
Q2) The first step in the journalizing and posting process is to ________.
A)post the journal entry to the ledger
B)identify the accounts involved and the account type
C)decide whether each account increases or decreases
D)record the transaction in the journal
Answer: B
Q3) Which of the following accounts increases with a credit?
A)Cash
B)Common Stock
C)Accounts Receivable
D)Prepaid Expense
Answer: B
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) The accounting period used for the annual financial statements is called the fiscal year.
A)True
B)False
Answer: True
Q2) The accountant of Skyscrapers Architectural Services failed to make an adjusting entry to record $7,000 of depreciation expense.Which of the following statements is true?
A)The total liabilities will be overstated.
B)The equity will be understated.
C)The total assets will be overstated.
D)The total assets will be understated.
Answer: C
Q3) Unearned Revenue is classified as a(n)________ account.
A)liability
B)asset
C)revenue
D)equity
Answer: A
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Chapter 4: Completing the Accounting Cycle
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Q1) Patents,copyrights,and trademarks are examples of ________.
A)short-term investments
B)fixed assets
C)long-term investments
D)intangible assets
Q2) The Common Stock account is a temporary account.
A)True
B)False
Q3) Which of the following accounts will be closed by debiting the Income Summary account?
A)Depreciation Expense
B)Accounts Payable
C)Service Revenue
D)Accumulated Depreciation
Q4) The process by which companies produce their financial statements for a specific period is called the ________.
A)operating cycle
B)closing process
C)opening process
D)accounting cycle
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Chapter 5: Merchandising Operations
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Q1) The terms of an invoice are 3/10,n/25.This means that a ________.
A)discount of 10 percent is allowed if the invoice is paid within three days
B)discount of 3 percent is allowed if the invoice is paid within 10 days
C)discount of 25 percent is allowed if the invoice is paid within 10 days
D)discount of 3 percent is allowed if the invoice is paid after 25 days
Q2) The general ledger shows a balance of $66,400 in the Merchandise Inventory account at the end of the period.The physical inventory count shows inventory of $63,000.The adjusting entry includes a ________.
A)debit to Cost of Goods Sold and a credit to Merchandise Inventory for $3,400
B)debit to Cost of Goods Sold and a credit to Cash for $3,400
C)debit to Merchandise Inventory and a credit to Cost of Goods Sold for $3,400
D)debit to Merchandise Inventory and a credit to Cash for $3,400
Q3) Freight in is recorded in the Merchandise Inventory account if the purchaser uses the perpetual inventory system.
A)True
B)False
Q4) Journalize the following transaction for a merchandiser that uses the perpetual inventory system. Sold goods for cash,$1,200 (cost $750).
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Chapter 6: Merchandise Inventory
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Questions
Q1) Robyn's Retail had 400 units of inventory on hand at the end of the year.These were recorded at a cost of $15 each using the last-in,first-out (LIFO)method.The current replacement cost is $13 per unit.The selling price charged by Robyn's Retail for each finished product is $22.In order to record the adjusting entry needed under the lower-of-cost-or-market rule,the Merchandise Inventory will be ________.
A)debited by $5,200
B)credited by $5,200
C)debited by $800
D)credited by $800
Q2) An overstatement of ending merchandise inventory in the current period results in an overstatement of cost of goods sold in the current period.
A)True
B)False
Q3) The total cost spent on inventory that was available to be sold during a period is called the cost of goods sold.
A)True
B)False
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Chapter 7: Internal Control and Cash
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Q1) The following information is needed to reconcile the cash balance for Jackson Lawn Services.
A deposit of $5,800 is in transit.
Outstanding checks total $1,500.
The book balance is $6,800 at February 28,2017.
The bookkeeper recorded a $1,740 check as $17,400 in payment of the current month's rent.
The bank balance at February 28,2017 was $18,000.
A deposit of $400 was credited by the bank for $4,000.
A customer's check for $3,700 was returned for nonsufficient funds.
The bank service charge is $60.
Based on this information,prepare a bank reconciliation for Jackson Lawn Services as of February 28,2017.
Q2) Which of the following items would require an adjusting entry after preparation of the bank reconciliation?
A)errors made by the bank revealed by the bank reconciliation
B)all items on the bank's side
C)errors made on the books revealed by the bank reconciliation
D)outstanding checks
Q3) Journalize the adjusting entry for the third reconciling item: NSF check.
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Chapter 8: Receivables
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Q1) The Allowance for Bad Debts account has a credit balance of $4,000 before the adjusting entry for bad debts expense.The company's management estimates that 4% of net credit sales will be uncollectible for the year 2017.Net credit sales for the year amounted to $250,000.What will be the balance of Allowance for Bad Debts on the December 31,2017 balance sheet?
A)$10,000
B)$4,000
C)$14,000
D)$9,840
Q2) Two methods of estimating uncollectible receivables are ________.
A)the allowance method and the amortization method
B)the aging-of-accounts-receivable method and the percent-of-sales method
C)the gross-up method and the direct write-off method
D)the direct write-off method and the percent-of-completion method
Q3) The percent-of-sales method calculates bad debts expense based on a percentage of net cash sales.
A)True
B)False
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Chapter 9: Plant Assets, natural Resources, and Intangibles
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Q1) Which of the following is true of goodwill?
A)Goodwill must be capitalized when acquired and amortized over seven years or less.
B)Both created and acquired goodwill must be recorded in the books.
C)Goodwill must be expensed when acquired.
D)Goodwill is not amortized.
Q2) Which of the following statements,regarding the reporting of intangible assets,is correct?
A)If a company uses the contra account,Accumulated Amortization,this account typically shown on the balance sheet.
B)Amortization expense is reported on the balance sheet.
C)Intangible assets are shown only at their net book value.
D)All intangible assets are shown on the balance sheet at fair market value on balance sheet date.
Q3) A plant asset is fully depreciated when the book value is ________.
A)greater than the residual value
B)greater than the market value
C)equal to the residual value
D)equal to the market value
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Chapter 10: Investments
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Q1) Glitter Services,Inc.pays $1,350,000 to acquire 35% of voting stock of Grey Investments,Inc.on March 5,2017.When this transaction is recorded,the ________.
A)total equity will increase
B)total assets will increase
C)total assets will decrease
D)total cash will decrease
Q2) Which of the following is the least desirable business reason for a company to invest in debt or equity securities?
A)to generate investment income
B)to invest short-term,excess cash
C)C) \(\text { to pursue certain business strategies }\)
D)to weaken the investing company's supply chain
Q3) The fair value of a trading security is the price that would be used if the company were to sell the investment on the market.
A)True
B)False
Q4) A company that is controlled by another corporation is called a parent company.
A)True
B)False
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Chapter 11: Current Liabilities and Payroll
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Q1) Since a company usually does not know the amount of the year-end bonus at year-end,the company estimates the amount of the bonus based on a percentage.
A)True
B)False
Q2) Which of the following is paid by the employer only?
A)OASDI tax
B)medicare tax
C)employee income tax
D)federal unemployment tax
Q3) Employer FICA is paid by the employer and recorded as a payroll tax expense.
A)True
B)False
Q4) At the maturity of a note payable,a borrower will pay ________.
A)the principal plus interest
B)the principal amount only
C)the interest amount only
D)the principal minus interest
Q5) Warranty Expense is shown on the income statement at the estimated amount.
A)True
B)False
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Chapter 12: Long-Term Liabilities
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Q1) The Tarrago Company issues $517,000 of 11%,10-year bonds at 104 on March 31,2017.The bond pays interest on March 31 and September 30.Assume that the company uses the straight-line method for amortization.Calculate the net balance that will be reported for the bonds on the September 30,2017 balance sheet.
A)$517,000
B)$537,680
C)$536,646
D)$538,714
Q2) On March 1,2016,Vantage Services issued a 8% long-term notes payable for $22,000.It is payable over a 16-year term in $1,375 principal installments on March 1 of each year,beginning March 1,2017.Each yearly installment will include both principal repayment of $1,375 and interest payment for the preceding one-year period.The journal entry to pay the first installment will include a debit to Interest Expense for $1,760.
A)True
B)False
Q3) On April 1,2017,Ardos Gardening Products borrowed $100,000 on a 15%,10-year note with annual installment payments of $10,000 plus interest due on April 1 of each subsequent year.Prepare the journal entry for the issuance of the note.
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Chapter 13: Stockholders Equity
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Q1) Lerner,Inc.had the following transactions in 2017,its first year of operations: Issued 22,000 shares of common stock.The stock has a par value of $3.00 per share and was issued at $16.00 per share.
Issued 1,800 shares of $160 par value preferred stock at par.
Earned net income of $37,000.
Paid no dividends.
At the end of 2017,what is total stockholders' equity?
A)$677,000
B)$354,000
C)$286,000
D)$640,000
Q2) Accounting for stated value common stock is identical to accounting for par value stock.
A)True B)False
Q3) Small and large stock dividends have no effect on the Common Stock account. A)True
B)False
Q4) List the four basic rights of stockholders.
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Chapter 14: The Statement of Cash Flows
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Q1) The three sections of the statement of cash flows report only activities that involve cash.
A)True B)False
Q2) Accountants can prepare the statement of cash flows directly from the lower part of the spreadsheet.
A)True B)False
Q3) Sonesta Farm Equipment Company sold equipment for cash.The income statement shows a loss on the sale of $7,000.The net book value of the asset was $28,900.Which of the following statements describes the cash effect of the transaction?
A)positive cash flow of $35,900 from financing activities
B)negative cash flow of $21,900 for operating activities
C)negative cash flow of $21,900 for financing activities
D)positive cash flow of $21,900 from investing activities
Q4) The spreadsheet starts with the beginning statement of cash flows and concludes with the ending statement of cash flows.
A)True B)False
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Chapter 15: Financial Statement Analysis
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Q1) Data for Sherman,Inc.are as follows:
\[\begin{array} { l l l }
& \underline { 2017 } & \underline { 2016 } \\
\text { Net Sales }& \$ 850,000 & \$ 798,000 \\
\text { Cost of Goods Sold } & 635,000 & 580,000 \\
\text { Selling and Administrative Expenses } & 50,000 & 35,000 \\
\text { Other Expenses } & 20,000 & 15,000 \\
\text { Income Tax } & 40,000 & 55,000
\end{array}\] Prepare a horizontal analysis of the comparative income statement of Sherman,Inc.(Round to one decimal place. )Use a multi-step income statement.
Q2) An annual report provides information about a company's financial condition.
A)True
B)False
Q3) Horizontal analysis compares each item in the income statement to the net sales amount.
A)True
B)False
Q4) What is a common-size statement? Why are these statements useful?
Q5) What is an annual report? Briefly describe the key parts of the annual report.
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Chapter 16: Introduction to Managerial Accounting
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Q1) New Hope,Inc.is a merchandiser of stone ornaments.It sold 15,000 units during the year.The company has provided the following information: \[\begin{array} { | l | r | }
\hline \text { Sales Revenue } & \$ 525,000 \\
\hline \text { Purchases (excluding Freight In) } & 347,000 \\
\hline \text { Selling and Administrative Expenses } & 36,500 \\
\hline \text { Freight In } & 15,500 \\
\hline \text { Beginning Merchandise Inventory } & 42,000 \\
\hline \text { Ending Merchandise Inventory } & 55,500 \\
\hline
\end{array}\] How much is the gross profit for the year?
A)$212,500
B)$349,000
C)$176,000
D)$178,000
Q2) How does a manufacturing company calculate unit product cost? Why do managers need to know the unit product cost?
Q3) Repair and maintenance costs for manufacturing equipment are product costs.
A)True
B)False
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Chapter 17: Job Order Costing
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Q1) When a job is completed,the total cost of the job is recorded with a debit to Finished Goods Inventory and a credit to Work-in-Process Inventory.
A)True
B)False
Q2) Which of the following accounts would be debited in the journal entry to record the issuance of direct materials?
A)Cost of Goods Sold
B)Work-in-Process Inventory
C)Finished Goods Inventory
D)Raw Materials Inventory
Q3) Highland,Inc. ,an engineering firm,uses a job order costing system to accumulate client-related costs.The predetermined overhead allocation rate is 40% of staff labor cost.The work by engineers is charged to jobs at a rate of $32 per staff labor hour.A recent job for a client used 70 staff labor hours.How much was the total job cost?
A)$896
B)$2,240
C)$3,136
D)$28
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Chapter 18: Process Costing
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Q1) Why are extra journal entries required in a process costing system?
Q2) Provide the formula for (1)To account for and (2)Accounted for.
Q3) The production cost reports show the calculations for the physical flows and the ________ flows of the products.
A)cash
B)price
C)cost
D)supply
Q4) Conversion costs include the costs of purchasing and converting raw materials into finished products.
A)True
B)False
Q5) Under a process costing system,costs of completed products are transferred to the Finished Goods Inventory at the end of the accounting period.
A)True
B)False
Q6) How is a production cost report prepared using the FIFO method?
Q7) List the four steps,in the order of occurrence,that are used in preparing a production cost report.
Chapter
19: Cost Management Systems: Activity-Based, just-In-Time, and Quality Management Systems
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Q1) Traditional costing provides more detailed information on costs of activities and the drivers of these costs than activity-based costing.
A)True
B)False
Q2) Which of the following is an attribute of traditional costing systems?
A)raw materials are ordered in large quantities
B)production is completed in self-contained work cells
C)suppliers make frequent deliveries of small quantities of raw materials
D)management works with suppliers to ensure defect-free raw materials
Q3) Activity-based costing focuses on a single predetermined overhead rate for cost analysis.
A)True
B)False
Q4) What is a quality management system? What is the common factor in all quality management systems?
Q5) Businesses should invest up front in internal and external failure costs to reduce prevention and appraisal costs.
A)True
B)False
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Chapter 20: Cost-Volume-Profit Analysis
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Q1) Increases in variable cost per unit ________ contribution margin per unit and ________ the breakeven point.
Q2) Fixed costs per unit decrease as production levels decrease.
A)True B)False
Q3) Higher fixed costs decrease the total contribution margin required to break even. A)True B)False
Q4) Popeye's,a local convenience store,sells soft drinks.It sells two large drinks for every small drink.A large drink sells for $3.00 with a variable cost of $0.80.A small drink sells for $1.00 with a variable cost of $0.50.The weighted average contribution margin is ________.(Round any intermediate calculations and your final answer to the nearest cent. )
A)$1.35 per drink
B)$4.90 per drink
C)$1.63 per drink
D)$2.20 per drink
Q5) List the cost-volume-profit (CVP)assumptions.
Q6) How is the contribution margin calculated?
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Chapter 21: Variable Costing
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Q1) Variable costing considers only ________ costs when determining product costs.
A)fixed manufacturing
B)variable manufacturing
C)variable selling and administrative
D)fixed selling and administrative
Q2) Managers do not consider sales mix for making decisions because it does not affect the overall profitability of the company.
A)True
B)False
Q3) Zertrax,Inc.reports the following information for July: \[\begin{array} { | l | r | }
\hline \text { Sales Revenue } & \$ 950,000 \\
\hline \text { Variable Costs } & 150,000 \\
\hline \text { Operating Income } & 410,000 \\
\hline
\end{array}\] What is the total fixed cost using variable costing?
A)$800,000
B)$390,000
C)$260,000
D)$560,000
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Chapter 22: Master Budgets
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Q1) A flexible budget is prepared to represent various levels of sales volume. A)True B)False
Q2) The budgeting process ________.
A)usually begins about one month before the beginning of the budget period to allow for more current information to be considered B)does not need input from all levels because it is the role of management to control costs and meet revenue goals C)requires significant coordination among the company's various business segments D)is standard among all types of companies
Q3) The budgeted income statements of both manufacturing and merchandising companies include the calculation of gross profit.
A)True B)False
Q4) What is the cornerstone of the master budget for a merchandising company? Why?
Q5) What is the final step in the master budget process?
Q6) What is a common method of accessing short-term financing?
Q7) List the three sections of the cash budget.
24
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) Grand Canyon Food Products is famous for its frosted fruit cake.The main ingredient of the cake is dried fruit,which Grand Canyon purchases by the pound.In addition,the production requires a certain amount of direct labor.Grand Canyon uses a standard cost system,and at the end of the first quarter,there was an unfavorable direct materials efficiency variance.Which of the following is a logical explanation for that variance?
A)The production manager negotiated a lower wage package for production staff,bringing direct labor costs down.
B)The factory lost two experienced workers at the beginning of the quarter,and their replacements wasted a large amount of dried fruits during their training period.
C)The purchasing manager was able to secure a volume discount on dried fruit,purchasing the fruit for less than the amount set by standard.
D)The production staff changed the work flow process so that production required fewer direct labor hours.
Q2) When recording direct materials purchased,what does an unfavorable direct materials cost variance represent? Will this variance have a debit or credit balance?
Q3) 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) Centralized companies split their operations into segments and top management delegates decision making to the segment managers.
A)True
B)False
Q2) Long-term investments are made by the investment center manager for the purpose of ________.
A)increasing profits
B)decreasing profits
C)increasing interest expense
D)decreasing plant assets
Q3) Residual income indicates how ________.
A)efficiently a division uses its average assets to generate sales and thereby profits
B)much operating income the division earns on every dollar of sales
C)much return a division generates on average assets
D)much extra operating income a division generates above the minimum acceptable level
Q4) When operating at capacity,a market-based transfer price should be used.
A)True
B)False
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Chapter 25: Short-Term Business Decisions
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Q1) Management decisions are based primarily on quantitative data because the qualitative factors are usually not relevant to the decision-making process.
A)True
B)False
Q2) If a business is considering the option of processing its product further,it ignores the
A)additional costs necessary to process further B)additional revenue that can be earned if processed further C)cost that is required to produce the basic product before processing further D)fact that additional processing will produce any environmental toxins
Q3) 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
Q4) Management of Bluebird Manufacturing is considering whether to drop a product line.So far,management has determined that the product has a negative contribution margin and that lost revenues are less than the total cost savings.In making the final decision,what are other questions that the management of Bluebird should consider?
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Chapter 26: Capital Investment Decisions
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Q1) Software Hub is deciding whether to purchase new accounting software.The cost of the software package is $59,000,and its expected life is ten years.The payback for this investment is four years.Assuming equal yearly cash flows,what are the expected annual net cash savings from the new software? (Assume the investment has no residual value. )
A)$5,900
B)$44,250
C)$14,750
D)$236,000
Q2) Many service,merchandising,and manufacturing firms use discounted cash flow methods to make capital investment decisions.
A)True
B)False
Q3) Compound interest assumes that all interest earned will remain invested and earn additional interest at the same interest rate.
A)True B)False
Q4) 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) An enterprise resource planning (ERP)is a ________.
A)hardware system that controls the access of employees to different levels of production in a firm
B)software system used by small companies to record revenue and expenses
C)hardware system of electronic linkages that allows different computers to share the same information
D)software system that can integrate all of a company's functions,departments,and data into a single system
Q2) A subsidiary ledger is ________.
A)an accounting journal designed to record a specific type of transaction
B)a created list of accounts used by a business entity to define each class of items for which cash is spent or received
C)a complete record of business transactions recorded in a ledger over the life of a company
D)a record of accounts that provide supporting details on individual balances,the total of which appears in a general ledger account
Q3) Define enterprise resource planning (ERP)systems and state one advantage and one disadvantage of ERP systems.
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