Business Decision Making
Chapter Exam Questions
Course Introduction
Business Decision Making explores the processes and tools essential for making effective managerial decisions in complex organizational environments. Students learn to apply analytical models, critical thinking, and quantitative techniques to real-world business problems, incorporating data analysis, risk assessment, and ethical considerations. The course covers topics such as decision-making under uncertainty, problem-solving frameworks, group decision dynamics, and the impact of organizational structure and culture on choices. By examining contemporary case studies, students gain practical experience in evaluating alternatives, justifying recommendations, and implementing solutions to drive successful business outcomes.
Recommended Textbook
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 return on assets is calculated by ________.
A)subtracting net income from average total assets
B)adding net income and average total assets
C)dividing net income by average total assets
D)multiplying net income and average total assets
Answer: C
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 is a characteristic of a corporation?
A)A corporation is owned by stockholders.
B)Lenders of a corporation do not have the right to claim the corporation's assets to satisfy their obligations.
C)All shares of a corporation must be held by a single individual.
D)Each stockholder has the authority to commit the corporation to a binding contract through his/her actions.
Answer: A
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Chapter 2: Recording Business Transactions
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Q1) Source documents provide the evidence and data for accounting transactions.
A)True
B)False Answer: True
Q2) The process of transferring data from the ledger to the journal is called posting.
A)True
B)False Answer: False
Q3) In a computerized environment,the posting process is completed automatically when the user enters the journal entry.
A)True
B)False
Answer: True
Q4) Accounts Receivable is a(n)________ account and has a normal ________ balance.
A)liability; debit
B)asset; debit
C)liability; credit
D)asset; credit
Answer: B
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Chapter 3: The Adjusting Process
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Q1) Anthony Delivery Service has a weekly payroll of $32,000.December 31 falls on Tuesday and Anthony will pay its employees the following Monday (January 6)for the previous full week.Assume that Anthony has a five-day workweek and has an unadjusted balance in Salaries Expense of $925,000.What is the December 31 balance of Salaries Expense after adjusting entries are recorded and posted?
A)$925,000
B)$957,000
C)$944,200
D)$937,800
Answer: D
Q2) What is the effect of the adjusting entry for Depreciation Expense?
A)It increases total liabilities and increases total expenses.
B)It increases total assets and increases total expenses.
C)It decreases total assets and increases total expenses.
D)It decreases total liabilities and increases total expenses.
Answer: C
Q3) The worksheet is NOT a journal,a ledger,or a financial statement.
A)True
B)False
Answer: True
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Chapter 4: Completing the Accounting Cycle
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Q1) Which of the following accounts will be included in a post-closing trial balance?
A)Accumulated Depreciation-Building
B)Rent Expense
C)Interest Expense
D)Service Revenue
Q2) Which of the following would be considered a long-term asset?
A)Accounts Payable
B)Land
C)Cash
D)Common Stock
Q3) Revenue and expense accounts are closed to the Income Summary account.
A)True
B)False
Q4) The current ratio measures a company's ________.
A)overall ability to pay liabilities
B)ability to pay current liabilities with current assets
C)proportion of assets that are financed by debt
D)rate of cash flow
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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Q1) Under a perpetual inventory system,merchandise returned by a customer to the seller is recorded as a ________ in the books of seller.
A)sales return
B)sales allowance
C)sales discount
D)purchase return
Q2) The Income Summary account has a credit balance of $20,000 after the revenue and expense accounts have been closed.Which of the following is to be credited to close the Income Summary account?
A)Dividends
B)Sales Revenue
C)Cost of Goods Sold
D)Retained Earnings
Q3) Under the perpetual inventory system,when a purchaser makes payment within the discount period,the amount of discount will be credited to the Merchandise Inventory account.
A)True
B)False
Q4) What does the gross profit percentage measure? How is it computed?
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Chapter 6: Merchandise Inventory
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Q1) A company purchased 300 units for $60 each on January 31.It purchased 150 units for $25 each on February 28.It sold a total of 250 units for $70 each from March 1 through December 31.If the company uses the weighted-average inventory costing method,calculate the amount of ending inventory on December 31.(Assume that the company uses a perpetual inventory system.Round any intermediate calculations two decimal places,and your final answer to the nearest dollar. )
A)$21,750
B)$9,666
C)$12,084
D)$8,500
Q2) Which of the following principles states that a business should not report anticipated gains?
A)conservatism
B)materiality concept
C)disclosure
D)consistency
Q3) South Meadows,Inc.sold 500 units of inventory at $25 per unit on account.The company uses the perpetual inventory system.The cost of the units sold was $10 per unit.Provide the journal entries to record the sale.
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Chapter 7: Internal Control and Cash
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Q1) Which of the following is described as a system where customers send their checks directly to a post office box that belongs to a bank?
A)an encryption system
B)an imprest system
C)a lock-box system
D)a firewall system
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) A check was written by a business for $507 but was recorded in the journal as $705.How would this error be included on the bank reconciliation?
A)a deduction on the bank side
B)an addition on the book side
C)an addition on the bank side
D)a deduction on the book side
Q4) Why is it necessary to journalize transactions from the bank reconciliation? List two examples of items that need to be journalized.
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Chapter 8: Receivables
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Q1) Smart Calendars is a new business.During its first year of operations,credit sales were $40,000,and collections of credit sales were $36,000.One account,$650,was written off.Using the aging-of-receivables method,management calculates $200 as its estimate of uncollectible amounts at year end.Prepare the journal entry to record bad debts expense.
Q2) Interest on a $100,000 note at 4% for 45 days is $493.(Use a 360 day year.Round your answer to the nearest dollar. )
A)True
B)False
Q3) The percent-of-sales method,used to compute bad debt expense,is also known as the balance sheet approach.
A)True
B)False
Q4) The maturity date for a six-month note issued on January 15 would be ________.
A)July 15
B)July 14
C)July 16
D)July 10
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Chapter 9: Plant Assets, natural Resources, and Intangibles
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Q1) On January 1,2017,Henry Manufacturing Corporation purchased a machine for $40,600,000.Henry's management expects to use the machine for 34,000 hours over the next six years.The estimated residual value of the machine at the end of the sixth year is $47,000.The machine was used for 4,000 hours in 2017 and 5,400 hours in 2018.Calculate the book value of the machine at the end of 2018 if the company uses the units-of-production method of depreciation.(Round any intermediate calculations to two decimal places,and your final answer to the nearest dollar. )
A)$29,388,244
B)$40,600,000
C)$29,375,272
D)$35,829,040
Q2) Blake,Inc.purchased a van on January 1,2015,for $800,000.Estimated life of the van was five years,and its estimated residual value was $90,000.Blake uses the straight-line method of depreciation.Give the journal entry to record the purchase of van for cash.
Q3) Businesses are required to use Modified Accelerated Cost Recovery System (MACRS)for tax purposes.
A)True
B)False
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Chapter 10: Investments
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Q1) A company may invest in debt or equity securities of other companies to ________.
A)further enhance a business relationship with a key vendor
B)invest borrowed money in an effort to improve the company's net income
C)to weaken the investing company's supply chain source
D)to allow the company to use investment income to increase its annual dividend
Q2) The unrealized holding gains and losses on available-for-sale investments are reported on the income statement.
A)True
B)False
Q3) Which of the following securities pay dividends?
A)corporate bonds
B)common stocks
C)debt securities
D)Treasury bills
Q4) The fair value of an investment is the price that ________.
A)existed at the time of acquisition
B)would be received if the company were to sell the investment on the market
C)is always equal to the weighted average cost of the investment
D)is not relevant for trading investments
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Chapter 11: Current Liabilities and Payroll
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Q1) Which of the following is an example of an estimable probable contingency?
A)FICA Taxes Payable
B)Income Taxes Payable
C)Warranty Payable
D)Accounts Payable
Q2) The information related to interest expense of Stereo Music,Inc.is given below:
\[\begin{array} { | l | r | }
\hline \text { Net income } & \$ 264,000 \\
\hline \text { Income tax expense } & 107,000 \\
\hline \text { Interest expense } & 66,000 \\
\hline
\end{array}\] Based on the above data,which of the following is the times-interest-earned ratio?
A)4.08 times
B)4 times
C)6.62 times
D)5 times
Q3) The entry to accrue the warranty payable includes a credit to Warranty Expense.
A)True
B)False
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Chapter 12: Long-Term Liabilities
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Q1) The difference between mortgages payable and notes payable is that notes payable are always secured by specific assets.
A)True
B)False
Q2) Case Wines Company issues $805,000 of 9%,10-year bonds on March 31,2017.The bonds pay interest on March 31 and September 30.Which of the following statements is true?
A)If the market rate of interest is 10%,the bonds will issue at a premium.
B)If the market rate of interest is 10%,the bonds will issue at a discount.
C)If the market rate of interest is 10%,the bonds will issue at par.
D)If the market rate of interest is 10%,the bonds will issue above par.
Q3) On March 1,2016,Baker Services issued a 5% long-term notes payable for $21,000.It is payable over a 3-year term in $7,000 annual principal payments on March 1 of each year plus interest,beginning March 1,2017.How will the notes payable be shown on the balance sheet dated December 31,2016?
A)$21,000 shown as current liability only
B)$7,000 shown as current liability and $21,000 shown as long-term liability
C)$7,000 shown as current liability and $14,000 shown as long-term liability
D)the entire $21,000 shown as long-term liability
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Chapter 13: Stockholders Equity
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Q1) ABC has 61,000 shares of $16.00 par common stock outstanding.ABC announces a stock split of 4-for-1.What is the effect of the split?
A)par stays at $16.00; total shares increase to 15,250
B)par drops to $8.00; total shares stay at 61,000
C)par drops to $4.00; total shares increase to 244,000
D)par goes to $64.00; total shares increase to 244,000
Q2) Which of the following occurs when a corporation distributes a stock dividend?
A)Total liabilities would increase.
B)Total stockholders' equity would increase.
C)Total assets would decrease.
D)Total stockholders' equity would be unchanged.
Q3) Paid-in capital consists of ________.
A)amounts received from customers
B)amounts raised by issuing bonds or preferred stocks
C)earnings generated by the corporation
D)amounts received from stockholders in exchange for stock
Q4) Small and large stock dividends have no effect on the Common Stock account.
A)True
B)False
Q5) List the four basic rights of stockholders.
Page 15
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Chapter 14: The Statement of Cash Flows
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Q1) Which of the following will be listed in the operating section of the statement of cash flows that is prepared using the indirect method?
A)collections from customers
B)payments to suppliers
C)interest received
D)increases/decreases in current liabilities
Q2) Jackson & Murphy Enterprises expects the following for 2017: Net cash provided by operating activities of \(\$ 232,000\)
Net cash provided by financing activities of \(\$ 18,000\)
Net cash provided by investing activities of \(\$ 67,000\)
Cash dividends paid to stockholders of \(\$ 16,000\) The business plans to spend $107,000 to purchase equipment.
What is the expected amount of free cash flow for 2017?
A)$109,000
B)$125,000
C)$76,000
D)$60,000
Q3) List and discuss three ways in which the statement of cash flows helps financial statement users.
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Chapter 15: Financial Statement Analysis
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Q1) For the vertical analysis of the balance sheet,the base amount is also the total of liabilities and stockholders' equity.
A)True
B)False
Q2) The horizontal analysis of the balance sheet shows the changes in net sales and net income.
A)True B)False
Q3) The gross profit percentage is an indicator of how well a company is positioned to pay off its short-term liabilities.
A)True
B)False
Q4) Trend analysis is a form of horizontal analysis.
A)True
B)False
Q5) What is an annual report? Briefly describe the key parts of the annual report.
Q6) List the two distinctly different gains and losses that are included on the income statement after continuing operations.
Q7) What is a common-size statement? Why are these statements useful?
Page 17
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Chapter 16: Introduction to Managerial Accounting
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Q1) Which of the following describes a system in which suppliers deliver materials at the time they are needed and finished units are completed when customer orders need to be filled?
A)Supply Chain Management (SCM)
B)Just-in-Time (JIT)Management
C)Enterprise Resource Planning (ERP)
D)Total Quality Management (TQM)
Q2) Managerial accounting provides financial statements that report results of operations,financial position,and cash flows both to managers and to external stockholders.
A)True
B)False
Q3) Which of the following would be considered a product cost for a manufacturing company?
A)salary of the sales manager
B)salary of the CEO
C)salaries of the accounting staff
D)salary of the production manager
Q4) How does a manufacturing company calculate unit product cost? Why do managers need to know the unit product cost?
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Chapter 17: Job Order Costing
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Q1) Happy Clicks,Inc.uses a predetermined overhead allocation rate of $5.50 per machine hour.Actual overhead costs incurred during the year are as follows:
\[\begin{array} { | l | r | }
\hline \text { Indirect materials } & \$ 6,700 \\
\hline \text { Indirect labor } & \$ 2,200 \\
\hline \text { Plant depreciation } & \$ 47 \\
\hline \text { Plant utilities and insurance } & \$ 9,800 \\
\hline \text { Other plant overhead costs } & \$ 12,400 \\
\hline \text { Total machine hours used during year } & 7,600 \text { hours } \\
\hline
\end{array}\] What is the amount of manufacturing overhead cost allocated to Work-in-Process Inventory during the year?
A)$38,747
B)$8,900
C)$29,847
D)$41,800
Q2) Actual manufacturing overhead costs are credited to the Manufacturing Overhead account.
A)True
B)False
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Chapter 18: Process Costing
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Q1) Costs assigned to goods sold are transferred to the Cost of Goods Sold account from the ________.
A)Finished Goods Inventory account
B)Work-in-Process Inventory account
C)Raw Materials Inventory account
D)Sales Revenue account
Q2) Under process costing,the number of units to account for must always be ________ the number of units accounted for.
A)greater than
B)lesser than C)equal to D)twice
Q3) A process is one of a series of steps in manufacturing production,usually associated with making large quantities of similar items.
A)True
B)False
Q4) Why are extra journal entries required in a process costing system?
Q5) Provide the formula for (1)To account for and (2)Accounted for.
Q6) How is a production cost report prepared using the FIFO method?
Page 20
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Chapter 19: Cost Management Systems: Activity-Based,
and Quality Management Systems
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Q1) ________ are costs incurred after the company delivers poor-quality goods or services to customers and then has to make things right with the customer.
A)Prevention costs
B)Appraisal costs
C)Internal failure costs
D)External failure costs
Q2) Jetz,Inc.manufactures water bottles for children.Similar water bottles are available in the market for $8.00.Jetz desires a 24% net profit margin.Jetz's target cost is ________.(Round your answer to the nearest cent. )
A)$6.08
B)$9.92
C)$8.00
D)$1.92
Q3) Indirect costs allocated to products using activity-based costing are more accurate than traditional allocation systems.
A)True
B)False
Q4) Define target cost.How is target cost determined?
21
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Chapter 20: Cost-Volume-Profit Analysis
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Q1) The margin of safety can be used to evaluate a company's plans for the future.
A)True
B)False
Q2) Arturo Company sells two generators-Model A and Model B-for $454 and $396,respectively.The variable cost of Model A is $408 and of Model B is $314.If Arturo Company's sales incentives reward sales of the goods with the highest contribution margin,the sales force will be motivated to push sales of Model A more aggressively than Model B.
A)True
B)False
Q3) A company that sells multiple products will always set sales prices such that all products have the same contribution margin.
A)True
B)False
Q4) The high-low method requires the identification of the lowest and highest levels of total costs,not activity,over a period of time.
A)True
B)False
Q5) How is the contribution margin calculated?
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Chapter 21: Variable Costing
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Q1) Variable costing is used for external reporting purposes,and absorption costing is used for internal decision-making purposes.
A)True
B)False
Q2) Unit product cost calculations using absorption costing do not include ________.
A)fixed manufacturing overhead
B)variable manufacturing overhead
C)variable selling and administrative costs
D)direct materials
Q3) In absorption costing,fixed manufacturing overhead is expensed ________.
A)when all the other non-manufacturing fixed costs are expensed
B)when the product is sold
C)at the end of the period in which it is paid
D)when the units are produced
Q4) 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 method.
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Chapter 22: Master Budgets
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Q1) Budgeting requires managers to develop overall business goals and budget for specific actions to achieve the goals.
A)True
B)False
Q2) In a company with different business units,individual managers make decisions by changing various assumptions of its budget in order to determine how the modifications would affect the operational and financial results.This is an example of ________.
A)financial statement analysis
B)responsibility accounting
C)sensitivity analysis
D)zero-based budgeting
Q3) A budget represents the plans that a company has in place to achieve its goals.
A)True
B)False
Q4) The level of forecasted sales has little effect on other elements of the master budget.
A)True
B)False
Q5) What is the cornerstone of the master budget for a merchandising company? Why?
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) What does the variable overhead cost variance measure?
Q2) When investigating overhead variances,management needs to determine whether cost increases were controllable or if the cost standard needs to be updated.
A)True
B)False
Q3) The direct materials cost and efficiency variances make up the total direct materials variance.
A)True
B)False
Q4) Only unfavorable variances should be investigated,if substantial,to determine their causes.
A)True
B)False
Q5) Which of the following is an example of a direct labor cost standard?
A)$40 per direct labor hour
B)50 square feet per unit
C)$0.95 per square foot
D)0.5 direct labor hours per unit
Q6) 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) Define market-based transfer price.When should market-based transfer pricing be used? Explain your answer.
Q2) List and briefly discuss the two limitations of financial performance measures.
Q3) If managers are measured on short-term financial performance only,they may not introduce new products.
A)True
B)False
Q4) Investment center managers are responsible for generating profits and making use of the investment center's assets.
A)True
B)False
Q5) A high rate of employee turnover indicates that ________.
A)employees of the organization leave their jobs frequently
B)pay packages of employees are at par with that of the industry
C)the employee retention ratio is also high
D)employees also participate in the decision making process
Q6) How is the use of a balanced scorecard as a performance evaluation system helpful to companies?
Q7) List the primary goals of performance evaluation systems.
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Chapter 25: Short-Term Business Decisions
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Q1) Wing Company makes a special kind of racing tire.Variable costs are $320,and fixed costs are $35,500 per month.Wing sells 600 units per month at a sales price of $410.If Wing upgrades the quality of the tire,management believes that the sales price can be increased to $470.If so,the variable cost will increase to $350,and the fixed costs will rise by 30%.The CEO wishes to increase his operating income by 21%.If the company decides to upgrade the product,the CEO will reach his goal.
A)True
B)False
Q2) Haskins Products sells 2,100 kayaks per year at a sales price of $450 per unit.Haskins sells in a highly competitive market and uses target pricing.The company has calculated its target full product cost at $740,000 per year.Total variable costs are $330,000 per year and cannot be reduced.Assume all products produced are sold.What are the target fixed costs?
A)$945,000
B)$205,000
C)$330,000
D)$410,000
Q3) Define the terms Relevant Cost and Sunk Cost.
Q4) Explain the difference between price-takers and price-setters.
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Chapter 26: Capital Investment Decisions
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Q1) Landmark Prints is considering an investment in new equipment costing $502,000.The equipment will be depreciated on a straight-line basis over a five-year life and is expected to generate net cash inflows of $122,000 the first year,$158,000 the second year,and $160,000 every year thereafter until the fifth year.What is the payback period for this investment? The residual value is zero.(Round your answer to two decimal places. )
A)4.30 years
B)3.39 years
C)2.80 years
D)3.11 years
Q2) The payback method considers cash flows that occur both during and after the payback period.
A)True
B)False
Q3) Which of the following situations suggests the acceptance of an investment proposal?
A)The present value of the net cash inflows exceeds the initial investment.
B)The IRR is lower than the hurdle rate.
C)The cash inflows are less than the initial investment.
D)The investment will have a residual value.
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Chapter 27: Accounting Information Systems
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Q1) Describe the transactions recorded in the cash payments journal.
Q2) Which of the following serves as the "journal of last resort?"
A)purchases journal
B)sales journal
C)general journal
D)cash payments journal
Q3) A special journal is ________.
A)an accounting journal designed to record a specific type of transaction
B)an accounting journal that holds individual accounts that support a specific general ledger account
C)a record of accounts that provides supporting details on individual balances,the total of which appears in a general ledger account
D)a created list of the accounts used by a business entity to define each class of items for which cash is spent or received
Q4) Because of the risk of fraud,electronic invoices and electronic receiving reports are seldom used in accounting information systems.
A)True
B)False
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