Financial and Managerial Accounting Exam Solutions
Course Introduction
Financial and Managerial Accounting introduces the fundamental concepts and practices of both financial and managerial accounting, enabling students to understand and analyze the financial health of organizations. The course covers the preparation and interpretation of essential financial statements, including the balance sheet, income statement, and cash flow statement, while also exploring the role of accounting information in internal decision-making. Emphasis is placed on cost behavior, budgeting, performance evaluation, and the strategic use of accounting data for planning and control. Through real-world examples and practical exercises, students develop critical skills to assess organizational performance and support effective management decisions.
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) In a sole proprietorship,the owner is personally liable for the debts of the business.
A)True
B)False
Answer: True
Q2) The field of accounting that focuses on providing information for internal decision makers is ________.
A)managerial accounting
B)financial accounting
C)nonmonetary accounting
D)governmental accounting
Answer: A
Q3) Stockholders primarily use managerial accounting information for decision-making purposes.
A)True
B)False
Answer: False
Q4) 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) The following are the current month's balances for Adams Marketing Company.
\[\begin{array} { | l | r | }
\hline \text { Accounts Payable } & \$ 7,000 \\
\hline \text { Revenue } & 11,000 \\
\hline \text { Cash } & 3,000 \\
\hline \text { Expenses } & 1,500 \\
\hline \text { Furniture } & 14,000 \\
\hline \text { Accounts Receivable } & 14,000 \\
\hline \text { Common Stock } & 10,250 \\
\hline \text { Notes Payable } & 5,500 \\
\hline
\end{array}\] What is the net income for Adams Marketing for the current month?
A)$11,000
B)$9,500
C)$12,500
D)$14,000
Answer: B
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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) The accounting principle that ensures all expenses are recorded during the period when they are incurred and offsets those expenses against the revenues of the period is called the ________ principle.
A)comparison
B)accrual
C)matching
D)revenue recognition
Answer: C
Q3) Under accrual basis accounting,revenue is recorded only when cash is received. A)True
B)False
Answer: False
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Chapter 4: Completing the Accounting Cycle
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Q1) The operating cycle is the time span required for a business to repay its long-term liabilities.
A)True
B)False
Q2) The worksheet helps accountants to ________.
A)make the trial balance
B)prepare the financial statements
C)prepare the unadjusted trial balance
D)maintain books of accounts without a journal
Q3) Which of the following accounts will be closed by crediting the Income Summary account?
A)Service Revenue
B)Depreciation Expense
C)Accounts Payable
D)Accumulated Depreciation
Q4) List the steps of the accounting cycle that take place at the end of the period.
Q5) The Dividends account is a permanent account.
A)True
B)False
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) Describe the calculation of cost of goods sold when using the periodic inventory system.
Q2) From the following details of a merchandiser,calculate the Cost of Goods Sold.(Assume the merchandiser uses the periodic inventory system. ) \[\begin{array} { | l | r | }
\hline \text { Net Sales } & \$ 198,000 \\
\hline \text { Purchases } & 92,000 \\
\hline \text { Purchase Returns and Allowances } & 1,800 \\
\hline \text { Purchase Discounts } & 1,400 \\
\hline \text { Freight In } & 1,350 \\
\hline \text { Beginning Merchandise Inventory } & 62,000 \\
\hline \text { Ending Merchandise Inventory } & 36,000 \\
\hline
\end{array}\]
A)$116,150
B)$62,800
C)$114,800
D)$54,150
Q3) What does the gross profit percentage measure? How is it computed?
Q4) Give the journal entry to close the Sales Revenue account.
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Chapter 6: Merchandise Inventory
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Sample Questions
Q1) Properly recording inventory when sold and removing the units sold from the inventory count will prevent a company from running out of inventory.
A)True
B)False
Q2) "The amounts obtained for cost of goods sold and ending merchandise inventory are always the same for FIFO perpetual and FIFO periodic." Is this statement true? Why or why not?
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) A company is uncertain whether a complex transaction should result in an asset being recorded at $100,000 or at $150,000.Under the conservatism principle,it should choose to show it at $100,000.
A)True
B)False
Q5) List and briefly discuss three measures that can be taken to maintain good controls over merchandise inventory.
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Chapter 7: Internal Control and Cash
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Sample Questions
Q1) In a large company,the person who is responsible for comparing cash and the bank balance is the ________.
A)CEO
B)CFO
C)controller
D)treasurer
Q2) A deposit receipt is ________.
A)retained by the customer as proof of a deposit transaction
B)the same as a signature card
C)used by the bank as an alternative to a remittance advice
D)given by the customer to the bank as a proof of deposit
Q3) As long as the same person deposits customer checks and records the deposits into the journal,there will be good internal control over cash receipts.
A)True
B)False
Q4) The bank statement reports the activity in the customer's account and issued on an annual basis.
A)True
B)False
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Chapter 8: Receivables
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Q1) Which of the following is a weak internal control over cash collections from receivables?
A)The credit department should have no access to cash.
B)A credit department should evaluate customers' credit applications to determine whether they meet the company's approval standards.
C)A company should have written approval standards for processing customers' credit applications.
D)In order to avoid losing sales,all customers' credit applications should be approved.
Q2) The maturity value of a note is the sum of the principal minus interest due at maturity.
A)True
B)False
Q3) When a business pledges its accounts receivable,it transfers the right to collect cash from customers to the bank.
A)True
B)False
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Chapter 9: Plant Assets, natural Resources, and Intangibles
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Sample Questions
Q1) The asset turnover ratio measures the amount of net sales generated for each average dollar of total assets invested.
A)True
B)False
Q2) Estimated residual value can be zero if the company does not expect to receive anything when disposing of the asset.
A)True
B)False
Q3) A coal mine cost $1,003,000 and is estimated to hold 51,000 tons of coal.There is no residual value.During the first year of operations,6,000 tons are extracted and sold.Calculate depletion expense for the first year.(Round any intermediate calculations to the nearest cent. )
A)$100,300
B)$150,450
C)$200,600
D)$118,020
Q4) Charlie 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.
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Chapter 10: Investments
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Q1) Which of the following is true of debt securities?
A)Debt securities entitle the holder to receipt of a share of profit in the form of dividends.
B)Debt securities typically pay interest for a fixed period.
C)Debt securities include preferred stocks.
D)Debt securities represent ownership interests of the investors.
Q2) The Long-term Investments account is debited for the receipt of a dividend on an equity method investment because the dividend increases the investee's equity.
A)True
B)False
Q3) An equity security represents a credit relationship with another company or governmental entity.
A)True
B)False
Q4) All available-for-sale investments are reported as long-term assets on the balance sheet.
A)True
B)False
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Chapter 11: Current Liabilities and Payroll
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Q1) Gene's gross pay for the week is $1,400.His yearly pay is under the limit for OASDI.Assume that the rate for state and federal unemployment compensation taxes is 6% and that Gene's year-to-date pay has previously exceeded the $7,000 cap.His yearly pay is under the limit for OASDI.What is the total amount of payroll taxes that Gene's employer must record as payroll tax expenses? (Do not round your intermediate calculations.Assume a FICA-OASDI Tax of 6.2% and FICA-Medicare Tax of 1.45%. )
A)$86.80
B)$58.80
C)$20.30
D)$107.10
Q2) A $49,000,three-month,12% note payable was issued on December 1,2017.What is the amount of accrued interest on December 31,2017?
A)$490
B)$708
C)$354
D)$823
Q3) Employer FICA is paid by the employer and recorded as a payroll tax expense.
A)True
B)False
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Page 13
Chapter 12: Long-Term Liabilities
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Sample Questions
Q1) Complete the following table:
\[\begin{array} { | l | l | l | }
\hline \begin{array} { l }
\text { Bond's Stated } \\
\text { Interest Rate }
\end{array} & \begin{array} { l }
\text { Market } \\
\text { Interest Rate }
\end{array} & \begin{array} { l }
\text { Will the issue price of Bonds Payable be at } \\
\text { a discount, premium, or face value? }
\end{array} \\
\hline 6 \% & 8 \% & \\
\hline 10 \% & 9 \% & \\
\hline 6 \% & 6 \% & \\
\hline
\end{array}\]
Q2) The future value is the bond's market price.
A)True
B)False
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Page 14
Chapter 13: Stockholders Equity
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Q1) Dividends in arrears are ________.
A)a liability on the balance sheet
B)passed dividends on noncumulative preferred stock
C)passed dividends on cumulative preferred stock
D)passed dividends on common stock
Q2) Carpenter Schools,Inc.is authorized to issue 500,000 shares of $2 par common stock.The company issued 106,000 shares at $6 per share.When the market price of common stock was $10 per share,Carpenter declared and distributed a 10% stock dividend.Later,Carpenter declared and paid a $0.10 per share cash dividend. Prepare the journal entries to record these transactions.Explanations are not required.
Q3) A stock split can involve issuing more shares of stock than authorized in the corporate charter.
A)True
B)False
Q4) What is a prior-period adjustment? How and when is a prior-period adjustment recorded?
Q5) Define treasury stock and provide two reasons why a corporation would purchase treasury stock.
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Chapter 14: The Statement of Cash Flows
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Q1) Christopher Corp.is preparing its statement of cash flows using the indirect method.It provides the following information about transactions for the year: Plant assets,net-beginning balance: $111,000 Plant assets,net-ending balance: $148,000 Equipment was purchased for $65,000. Equipment with a net asset value of $12,000 was sold for $18,000. Depreciation Expense of $16,000 was recorded during the year. What was the amount of net cash provided by (used for)investing activities?
A)$(47,000)
B)$47,000
C)$(63,000)
D)$(39,000)
Q2) The purchase of equipment financed by a long-term notes payable is an example of
A)investing activity
B)financing activity
C)operating activity
D)non-cash investing and financing activity
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) The financial statements for Stephens' Electric Company include the following items:
\[\begin{array} { l r r } & 2017 & 2016 \\
\text { Cash } & \$ 55,000 & \$ 51,000 \\
\text { Cash Equivalents } & 23,500 & 20,000 \\
\text { Net Accounts Receivable } & 30,000 & 26,000 \\
\text { Merchandise Inventory } & 81,000 & 65,000 \\
\text { Total Assets } & 530,000 & 548,000 \\
\text { Accounts Payable } & 44,500 & 35,000 \\
\text { Salaries Payable } & 24,000 & 20,000 \\
\text { Long-term Note Payable } & 61,000 & 57,000 \\
\text { Income From Operations } & 124,500 & 115,000 \\
\text { Interest Expense } & 28,000 & 33,000
\end{array}\] Compute the 2016 cash ratio.(Round your answer to two decimal places. )
A)1.29
B)1.15
C)2.03
D)0.63
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Chapter 16: Introduction to Managerial Accounting
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Sample Questions
Q1) Which of the following represents the combined sum of direct labor and manufacturing overhead?
A)conversion costs
B)period costs
C)prime costs
D)fixed costs
Q2) Which of the following is true of Finished Goods Inventory?
A)Finished Goods Inventory is an account used by a manufacturer and includes completed goods that have not yet been sold.
B)Finished Goods Inventory is an account used by a merchandiser and includes completed goods that have not yet been sold.
C)Finished Goods Inventory is an account used by service companies in lieu of raw materials inventory.
D)Finished Goods Inventory is an account used by a manufacturer in lieu of raw materials inventory.
Q3) The cost of goods sold is added to net sales revenue to determine gross profit.
A)True
B)False
Q4) Define planning.List and briefly discuss a planning tool that managers can use.
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Chapter 17: Job Order Costing
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Q1) Overallocated manufacturing overhead is adjusted by debiting the Cost of Goods Sold account.
A)True
B)False
Q2) On January 1,Frederic Manufacturing had a beginning balance in Work-in-Process Inventory of $160,000 and a beginning balance in Finished Goods Inventory of $20,000.During the year,Frederic incurred manufacturing costs of $205,000. During the year,the following transactions occurred:
Job C-62 was completed for a total cost of $140,000 and was sold for $158,000.
Job C-63 was completed for a total cost of $181,000 and was sold for $213,000.
Job C-64 was completed for a total cost $84,000 but was not sold as of year-end.
The Manufacturing Overhead account had an unadjusted credit balance of $26,000 and was adjusted to zero at year-end.
What was the final balance in the Cost of Goods Sold account?
A)$295,000 debit balance
B)$347,000 debit balance
C)$347,000 credit balance
D)$295,000 credit balance
Q3) Why would the manager of a service company need to use job order costing?
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Page 19
Chapter 18: Process Costing
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Q1) The Assembling Department of Miller,Inc.had 10,000 units in process on December 1 and received 30,000 units from the Sewing Department.During the month,it completed 20,000 units and transferred them to the Packaging Department.Calculate the number of units accounted for by the Assembling Department for December.Prepare the production cost report for the Assembling Department for the whole units for the month of December.Use the FIFO method.
Q2) 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
Q3) Jetwell,Inc.incurred $4,000 for indirect labor in Department III.The journal entry to record indirect labor utilized is ________.
A)debit Manufacturing Overhead,$4,000; credit Accounts Payable,$4,000
B)debit Accounts Payable,$4,000; credit Manufacturing Overhead,$4,000
C)debit Manufacturing Overhead,$4,000; credit Wages Payable,$4,000
D)debit Wages Payable,$4,000; credit Manufacturing Overhead,$4,000
Q4) Iowa,Inc.purchased raw materials for $6,000 and $25,000 for cash and on account,respectively.Provide the journal entry to record the purchase of raw materials.
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Page 20
Chapter
Management Systems
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Q1) A radial tire manufacturer produces products in two departments-Divisions A and B.The company uses separate predetermined overhead allocation rates for each department to allocate its overhead.Divisions A and B have estimated manufacturing overhead costs of $160,000 and $340,000,respectively.Division A uses machine hours as the allocation base,and Division B uses direct labor hours as the allocation base.The total estimated machine hours were 31,000,and direct labor hours were 22,000 for the year.Calculate the departmental predetermined overhead allocation rates.(Round your answer to the nearest cent. )
A)Division A-$5.16,Division B-$15.45
B)Division A-$15.45,Division B-$5.16
C)Division A-$7.27,Division B-$10.97
D)Division A-$10.97,Division B-$7.27
Q2) A modification of the overhead allocation method which uses a single plantwide rate,is to use multiple predetermined overhead allocation rates that have a single allocation base.
A)True
B)False
Q3) Quality management systems emphasize external failure costs.
A)True B)False
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Chapter 20: Cost-Volume-Profit Analysis
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Q1) Divine Foods produces a gourmet condiment that sells for $24 per unit.Variable cost is $6 per unit,and fixed costs are $8,000 per month.If Divine expects to sell 1,500 units,compute the margin of safety in units.(Round any intermediate calculations and your final answer to the nearest whole unit. )
A)444 units
B)1,056 units
C)1,500 units
D)19 units
Q2) Which of the following statements is true if the variable cost per unit increases while the sales price per unit and total fixed costs remain constant?
A)The breakeven point decreases.
B)The contribution margin increases.
C)The breakeven point remains the same.
D)The breakeven point increases.
Q3) Which of the following is a period cost?
A)manufacturing overhead
B)direct labor cost
C)direct materials cost
D)administrative cost
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Chapter 21: Variable Costing
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Q1) Contribution margin is calculated by deducting the total cost of goods sold from sales revenue.
A)True B)False
Q2) Which of the following statements is true of absorption and variable costing methods?
A)Both costing methods consider selling and administrative costs to be period costs. B)Variable costing considers variable selling and administrative costs to be product costs.
C)Absorption costing considers fixed manufacturing overhead to be period costs. D)Both costing methods consider fixed manufacturing overhead to be product costs.
Q3) When units produced exceeds units sold,how does operating income differ between variable costing and absorption costing? Explain your answer.
Q4) The contribution margin format of the income statement categorizes costs by their behavior.
A)True B)False
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Chapter 22: Master Budgets
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Q1) A strategic budget is a long-term financial plan used to coordinate the activities needed to achieve the long-term goals of the company.
A)True
B)False
Q2) The production manager projects direct labor costs.
A)True
B)False
Q3) Budgeted purchases of direct materials is determined by adding direct materials needed for production to the desired direct materials in ending inventory.
A)True
B)False
Q4) To calculate budgeted direct labor costs,multiply the number of units to be produced by the number of projected direct labor hours.Next,multiply that total by the actual direct labor cost per hour.
A)True
B)False
Q5) List the budgets that are affected by the budgeted number of units to be produced.
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) Wood Designs Company,a custom cabinet manufacturing company,is setting standard costs for one of its products.The main material is cedar wood,sold by the square foot.The current cost of cedar wood is $6.00 per square foot from the supplier.Delivery costs are $0.20 per square foot.Carpenters' wages are $20.00 per hour.Payroll costs are $4.00 per hour,and benefits are $5.00 per hour.How much is the direct materials standard cost per square foot?
A)$11.20
B)$10.20
C)$6.20
D)$6.00
Q2) On a standard cost income statement,the variances with debit balances are shown in parentheses because they are contra expenses and therefore decrease the expense Cost of Goods Sold.
A)True
B)False
Q3) List the direct materials variances,and briefly describe each.
Q4) Developing efficiency standards based on best practices is called benchmarking.
A)True
B)False
Q5) What does the variable overhead efficiency variance measure?
Page 25
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Chapter 24: Responsibility Accounting and Performance Evaluation
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Q1) How is the use of a balanced scorecard as a performance evaluation system helpful to companies?
Q2) Huntswell Corporation has two major divisions: Agricultural Products and Industrial Products.It provides the following information for the year. \[\begin{array} { | l | r | r | }
\hline & \text { Agriculture Division } & \text { Industrial Division } \\
\hline \text { Net sales } & \$ 140,000 & \$ 1,250,000 \\
\hline \text { Operating income } & \$ 17,600 & \$ 218,000 \\
\hline \text { Average assets } & \$ 340,000 & \$ 5,500,000 \\ \hline
\end{array}\] Calculate the profit margin for the Industrial Division of the company.(Round your answer to two decimal places. )
A)3.96%
B)5.18%
C)17.44%
D)12.57%
Q3) Discuss the difference between a centralized company and a decentralized company.
Q4) Explain the difference between a controllable and a noncontrollable cost.
Page 26
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Chapter 25: Short-Term Business Decisions
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Q1) A sunk cost is a cost that was incurred in the past and cannot be changed regardless of what future action is taken.
A)True
B)False
Q2) Ridley Corporation manufactures two styles of lamps-a Bedford Lamp and a Lowell Lamp.The following per unit data are available: \[\begin{array} { | l | r | r | }
\hline & \text { Bedford Lamp } & \text { Lowell Lamp } \\
\hline \text { Sales price } & \$ 25 & \$ 35 \\
\hline \text { Variable costs } & \$ 17 & \$ 23 \\
\hline \text { Machine hours required for one lamp } & 2 & 4 \\
\hline
\end{array}\] Total fixed costs are $40,000.Marketing data indicate that the company can sell up to 6,000 units of the Bedford Lamp and up to 6,000 units of the Lowell Lamp.Machine hour capacity is 25,000 hours per year.Which product mix will deliver the optimum operating income?
A)6,000 Bedford Lamps and 6,000 Lowell Lamps
B)3,000 Bedford Lamps and zero Lowell Lamps
C)6,000 Bedford Lamps and 3,250 Lowell Lamps
D)3,000 Bedford Lamps and 1,500 Lowell Lamps
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Chapter 26: Capital Investment Decisions
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Q1) Capital rationing is a process adopted when a company has limited resources,and it must find ways to reduce operating expenses in all of its divisions and units.
A)True
B)False
Q2) An operational asset used for a long period of time is known as a capital asset.
A)True
B)False
Q3) You have just won the lottery and have three payout options:
1.$1,000,000 now
2.$150,000 at the end of each year for the next ten years
3.$2,000,000 at the end of ten years.
What is a common basis for comparison that you can use to decide which option to choose? Explain your answer.
Q4) The Accounting Rate of Return method evaluates the lifetime return of an investment,whereas Return on Investment evaluates the annual return of an investment.
A)True
B)False
Q5) What are the strengths of the net present value capital budgeting method?
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Chapter 27: Accounting Information Systems
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Sample Questions
Q1) A cash payments journal is a special journal that ________.
A)differs from the cash disbursements journal
B)eliminates the need to perform a bank reconciliation
C)is used to record cash payments by check and currency
D)is used to record the net of cash payments and cash receipts by check and currency
Q2) Sales on account are recorded in a cash receipts journal.
A)True
B)False
Q3) Which of the following is true of source documents in an accounting information system?
A)All journal entries can be considered as source documents in an accounting information system.
B)Source documents provide control and reliability in an accounting information system.
C)A manual document cannot be considered as a source document in an accounting information system.
D)In a manual accounting information system,source documents refer to financial statements.
Q4) Describe the transactions recorded in the purchases journal.
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