Introduction to Managerial Accounting Practice Exam
Course Introduction
Introduction to Managerial Accounting provides students with a foundational understanding of how accounting information supports business decision-making. The course explores key concepts such as cost behaviors, budgeting, performance evaluation, and internal controls. Emphasizing the role of accounting information in planning and controlling operations, students learn to analyze financial data, prepare relevant reports, and apply managerial accounting techniques to real-world business scenarios. Through case studies and practical exercises, learners gain skills necessary for effective management and informed strategic decisions within organizations.
Recommended Textbook Horngren's Financial and Managerial Accounting 6th Edition by Tracie L. Miller Nobles
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Page 2
Chapter 1: Accounting and the Business Environment
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Q1) The statement of retained earnings informs users about how much of the earnings were kept and reinvested in the company.
A)True
B)False
Answer: True
Q2) A payable is always a liability.
A)True
B)False
Answer: True
Q3) Jason Repair Corporation incurred $1,500 as advertising expense and promised to pay the advertising agency within 30 days. Which of the following will decrease as a result of this transaction?
A) Assets
B) Stockholders' equity
C) Liabilities
D) Revenues
Answer: B
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Chapter 2: Recording Business Transactions
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Sample Questions
Q1) ________ represents a debt owed for renting a building.
A) Prepaid Rent
B) Rent Payable
C) Rent Revenue
D) Rent Expense
Answer: B
Q2) The Salaries Payable account is a(n) ________.
A) liability account with a normal debit balance
B) asset account with a normal debit balance
C) liability account with a normal credit balance
D) asset account with a normal credit balance
Answer: C
Q3) The trial balance verifies the equality of debits and credits on a specific date.
A)True
B)False
Answer: True
Q4) What are two ways in which a company can improve its debt ratio?
Answer: Increase assets
Reduce debt
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) The matching principle states that ________.
A) financial statements can be prepared for specific periods
B) a business's activities can be sliced into small time segments
C) all expenses should be recorded when they are incurred during the period
D) companies should record revenue when it has been earned
Answer: C
Q2) Accrued revenue is revenue that ________.
A) has been collected and earned
B) the business has collected in cash, but not yet earned
C) the business has earned, but not yet collected in cash
D) will be collected and earned in the future
Answer: C
Q3) Under cash basis accounting, an expense is recorded only when cash is paid.
A)True
B)False
Answer: True
Q4) If net income is overstated, equity will be understated.
A)True
B)False
Answer: False
Page 5
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Chapter 4: Completing the Accounting Cycle
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Q1) Reversing entries are special journal entries that ease the burden of accounting for transactions in a later period.
A)True B)False
Q2) In the worksheet, the adjusted balance of the Service Revenue account appears in the credit column of the income statement.
A)True B)False
Q3) Only temporary accounts appear on the post-closing trial balance.
A)True B)False
Q4) A balance sheet prepared in the account form lists the assets at the top and the liabilities and stockholders' equity below.
A)True
B)False
Q5) List the steps of the accounting cycle that take place during the period.
Q6) The Cash account is a temporary account. A)True B)False
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Chapter 5: Merchandising Operations
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Q1) A modern perpetual inventory system ________.
A) records the quantity, but not the cost, of merchandise inventory on hand
B) achieves better control over inventory
C) eliminates the need for a physical count of inventory
D) is required by U.S. GAAP
Q2) For a merchandiser, the term "inventory" refers to ________.
A) raw materials that are used for production
B) equipment that are used in production process
C) the cost of goods sold
D) goods held for sale to customers
Q3) In a periodic inventory system, ________.
A) quantities of merchandise inventory on hand are updated after each sale and each purchase
B) the cost to invest in the system is greater than the cost to invest in a perpetual inventory system
C) the business is in violation of U.S. GAAP
D) businesses must obtain a physical count of inventory to determine quantities on hand
Q4) List the three steps, in order of occurrence, of the operating cycle of a merchandising business.
Page 7
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Chapter 6: Merchandise Inventory
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Q1) Using the FIFO method of inventory valuation will always produce the same results for cost of goods sold and ending inventory whether a company uses perpetual or periodic inventory costing methods.
A)True
B)False
Q2) In a period of rising costs, the last-in, first-out (LIFO) method results in a lower cost of goods sold and a higher net income than the first-in, first-out (FIFO) method.
A)True
B)False
Q3) Under the weighted-average method for inventory costing, the cost per unit is determined by ________.
A) dividing the cost of goods available for sale by the number of units available for sale
B) dividing the cost of goods available for sale by the number of units in beginning inventory
C) multiplying the number of units purchased with the weighted-average cost
D) multiplying the cost of goods available for sale by the ending weighted-average cost of the previous accounting period
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Chapter 7: Internal Control and Cash
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Q1) Before sending the check for payment of goods, the controller should examine the payment pack. List the documents that are included in the payment pack and describe the information provided by each document.
Q2) 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
Q3) Internal auditors are employees of the business who ensure that employees are following company policies and that operations are running efficiently.
A)True
B)False
Q4) Burglar alarms, fire alarms, and security cameras improve internal control.
A)True
B)False
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9
Chapter 8: Receivables
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Q1) On January 1, All City Services has the following balances: Accounts Receivable
$25,000
Bad Debts Expense $0
All City has the following transactions during January: Credit sales of $120,000, collections of credit sales of $81,000, and write-offs of $18,000. All City uses the direct write-off method. The amount of Bad Debts Expense for January is ________.
A) $25,000
B) $26,667
C) $12,150
D) $18,000
Q2) The Allowance for Bad Debts account has a credit balance of $2,000 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 2019. Net credit sales for the year amounted to $250,000. What is the amount of Bad Debts Expense reported on the income statement for 2019?
A) $10,000
B) $12,000
C) $5,000
D) $8,000
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Page 10
Chapter 9: Plant Assets, Natural Resources, and Intangibles
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Sample Questions
Q1) Which of the following statements about franchises is correct?
A) Franchises are privileges granted by a government to use public property in performing services.
B) The acquisition cost of a franchise is always amortized over its legal life.
C) Franchises are privileges granted by a business to sell goods or services under specified conditions.
D) The acquisition cost of a franchise cannot be amortized because its useful life cannot be determined.
Q2) If an asset is discarded when it is fully depreciated and has no residual value, the business does not need to make a journal entry because the book value is zero.
A)True
B)False
Q3) Installation costs are recorded as part of the cost of equipment. A)True
B)False
Q4) All intangible assets must be amortized each year.
A)True
B)False
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11
Chapter 10: Investments
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Q1) Securities are represented by a certificate and are commonly traded on an exchange.
A)True
B)False
Q2) List and briefly describe the method used to account for investments in equity securities with more than 50% ownership.
Q3) Which of the following is the correct formula for calculating rate of return on total assets?
A) (Net income + Interest expense) / Average total assets
B) (Net income - Interest expense) / Average total asset
C) (Net income - Interest expense) / Total assets
D) Total equity / Total assets
Q4) When a company invests in equity securities with 20% to 50% ownership in the investee's _______ stock, the investor can ________ ________ the investee's decisions. These types of investments must be accounted for using the ________ method.
Q5) Provide the following information for controlling interest equity investments:
1. Which accounting method is used?
2. What is the balance sheet effect when using this accounting method?
3. What is the income statement effect when using this accounting method?
Page 12
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Chapter 11: Current Liabilities and Payroll
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Q1) Gross pay is the total amount of compensation earned by an employee after the deductions are made.
A)True
B)False
Q2) Mars Corp. had cash sales of $10,000. The state sales tax rate is 10.8%. What amount is debited to the Cash account?
A) $10,000
B) $11,080
C) $1080
D) $1000
Q3) The current portion of notes payable is the amount of the principal that is payable more than one year from the balance sheet date.
A)True
B)False
Q4) If a contingency that is probable can be reasonably estimated, a liability is recorded and an expense is accrued.
A)True
B)False
Q5) What is a contingent liability? Provide two examples of contingencies.
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Chapter 12: Long-Term Liabilities
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Q1) On January 1, 2018, Denver Services issued $20,000 of 8% bonds that mature in five years. The bonds were issued for $19,000. Prepare the journal entry to issue bonds. Omit explanation.
Q2) Which of the following is true of the Discount on Bonds Payable account? The bonds are due in ten years.
A) It is added to the Bonds Payable balance and shown with long-term liabilities on the balance sheet.
B) It is subtracted from the Bonds Payable balance and shown with the current liabilities on the balance sheet.
C) It is added to the Bonds Payable balance and shown with stockholders' equity on the balance sheet.
D) It is subtracted from the Bonds Payable balance and shown with long-term liabilities on the balance sheet.
Q3) The process for calculating present values is often called present valuing cash flows. A)True B)False
Q4) What is the only difference between present value and future value?
Q5) When computing the present value of a bond, which interest rate is used? Why?
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Chapter 13: Stockholders Equity
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Q1) Which of the following actions will decrease the amount of Total Stockholders' Equity?
A) cash dividend declared
B) stock split
C) stock dividend declared
D) repayment of bond principal
Q2) Corporations may not retire preferred stock in order to avoid paying the preferred dividends.
A)True
B)False
Q3) A company that reports a discontinued operation item must also report earnings per share for the item.
A)True
B)False
Q4) Which of the following items are NOT reported as part of income from continuing operations?
A) discontinued operations
B) gross profit
C) other income and (expenses)
D) gain on sale of equipment
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Chapter 14: The Statement of Cash Flows
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Q1) Wisconsin, Inc. owed one of its creditors $350,000, but it did not have enough cash to repay the debt. Following lengthy negotiations, the parties agreed that Wisconsin, Inc. would issue 50,000 shares of common stock to settle the debt. On the statement of cash flows, this transaction is shown in the ________.
A) investing activities section
B) financing activities section
C) operating activities section
D) non-cash investing and financing activities section
Q2) Which of the following sections of the statement of cash flows include activities that affect net income on the income statement?
A) the financing activities section
B) the operating activities section
C) the investing activities section
D) the non-cash investing and financing section
Q3) Buying property, plant, and equipment for cash is considered a cash outflow for the financing activities section of the statement of cash flows.
A)True
B)False
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Chapter 15: Financial Statement Analysis
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Q1) Amber, Inc. provides the following information for 2019: \[\begin{array} { | l | r | }
\hline \text { Net income } & \$ 270,000 \\
\hline \text { Market price per share of common stock } & \$ 60 \text { per share } \\
\hline \text { Dividends paid } & \$ 180,000 \\
\hline \text { Common stock outstanding at Jan. } 1,2019 & 165,000 \text { shares } \\
\hline \text { Common stock outstanding at Dec. } 31,2019 & 230,000 \text { shares } \\
\hline
\end{array}\] The company has no preferred stock outstanding. Calculate the earnings per share for 2019. (Round your answer to two decimal places.)
A) $0.46 per share
B) $1.64 per share
C) $1.37 per share
D) $1.17 per share
Q2) What is an annual report? Briefly describe the key parts of the annual report.
Q3) What is a common-size statement? Why are these statements useful?
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Chapter 16: Introduction to Managerial Accounting
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Sample Questions
Q1) Which of the following statements is true of managerial accounting?
A) The external stakeholders of a company are the primary users of managerial accounting.
B) Managerial accounting information is used to help managers plan, direct and control their operations.
C) An external audit by an independent CPA is required for managerial accounting information.
D) Managerial accounting information must comply with Generally Accepted Accounting Principles.
Q2) The cost of goods manufactured includes selling expenses, administrative expenses, and manufacturing overhead.
A)True
B)False
Q3) A company's president or chief executive officer (CEO) is selected by the stockholders.
A)True
B)False
Q4) Define period cost. Give three examples of period costs of a merchandising company.
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Chapter 17: Job Order Costing
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Q1) Saber Promotional Services uses a job order system for costing and billing promotional services for dance and ballet performances. Saber has four public relations specialists and office staff. At the beginning of the year, Saber estimated the total cost of salaries and benefits for the public relations specialists at $403,800 and a total of 7100 billable hours for the year. The office and administrative costs were estimated at $676,000. The allocation base for office and administrative costs is billable hours. What rate would Saber use for allocating the cost of its office and administrative staff? (Round your answer to the nearest cent.)
A) $95.21 per hour
B) $152.08 per hour
C) $38.34 per hour
D) $56.87 per hour
Q2) If the debit side of the Manufacturing Overhead account totals more than the credit side of the account, the manufacturing overhead is overallocated.
A)True
B)False
Q3) Why would the manager of a service company need to use job order costing?
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Chapter 18: Process Costing
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Q1) If a business operates in an industry that experiences significant cost changes, should the business prepare its production cost report using the FIFO method or the weighted-average method? Explain your answer.
Q2) Under process costing, depreciation on plant machinery is debited to the respective department's Work-in-Process Inventory.
A)True
B)False
Q3) In a process costing system, production costs are ________.
A) adjusted and allocated by jobs
B) not reported in Work-in-Process Inventory or Finished Goods Inventory
C) directly shown on the income statement
D) accumulated by process
Q4) The production cost report for Department 1 shows that $159,000 was assigned to the 38,000 units transferred to Department 2. This transfer cost assigned to units transferred to Department 2 is recorded with a debit to Work-in-Process-Department 1. Process costing is used.
A)True
B)False
Q5) How is a production cost report prepared using the FIFO method?
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Chapter 19: Cost Management Systems: Activity-Based
Just-In-Time
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Q1) Activity-based costing focuses on a single predetermined overhead rate for cost analysis.
A)True
B)False
Q2) Which of the following statements is true of just-in-time management systems?
A) It involves ordering raw materials in large quantities to obtain volume discounts.
B) It triggers production after the customer places an order.
C) Its successful implementation is independent of vendor relationships.
D) It contracts with suppliers to deliver large quantities of goods once a year.
Q3) Target pricing considers all production costs and all nonmanufacturing costs in its analysis.
A)True
B)False
Q4) Value engineering means reevaluating activities to reduce costs while still satisfying customer needs.
A)True B)False
Q5) Managers can use activity-based management to make what two kinds of decisions?
Q6) What is the purpose of implementing a just-in-time inventory system? Page 21
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Chapter 20: Cost Volume Profit Analysis
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Q1) In a cost-volume-profit (CVP) graph, the breakeven point is where the sales revenue line intersects the fixed cost line.
A)True
B)False
Q2) Zander Company has fixed costs of $14,000. The company's contribution margin ratio is 46%. What is the breakeven point in sales dollars? (Round your answer to the nearest dollar.)
A) $70,000
B) $30,435
C) $6440
D) $2800
Q3) Awanita Enterprises sells computer flash drives for $3.16 per unit. Unit variable cost is $0.06. The breakeven point in units is 3600, and expected sales in units are 4300. What is the margin of safety in dollars?
A) $2170
B) $2212
C) $42
D) $11,376
Q4) How is the contribution margin ratio calculated?
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Chapter 21: Variable Costing
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Q1) Answer the following absorption costing questions:
\[\begin{array} { | l | l | }
\hline \text { Question } & \text { Absorption Costing } \\
\hline \text { Which costs are included as } & \\
\text { product costs? } & \\
\hline \text { Which costs are included as } & \\
\text { period costs? } & \\
\hline
\end{array}\]
Q2) In variable costing, fixed manufacturing overhead is considered a period cost because ________.
A) these costs are indirectly related to production
B) these are not incurred in the period in which the units are produced
C) these costs are incurred whether or not the company manufactures any goods
D) these costs are direct costs incurred for production
Q3) Variable costing cannot be used in service companies.
A)True
B)False
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Chapter 22: Master Budgets
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Q1) The financial budgets include the cash budget and the budgeted financial statements-the budgeted income statement and budgeted balance sheet.
A)True
B)False
Q2) The ________ details how the business expects to go from the beginning cash balance to the desired ending cash balance.
A) capital expenditures budget
B) budgeted income statement
C) cash flow statement
D) cash budget
Q3) The budgeted production of Capricorn, Inc. is 10,000 units per month. Each unit requires 20 minutes of direct labor to complete. The direct labor rate is $100 per hour.
Calculate the budgeted cost of direct labor for the month. (Round any intermediate calculations to the nearest cent and your final answer to the nearest dollar.)
A) $333,333
B) $66,667
C) $1,000,000
D) $50,000
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) Which of the following is the correct formula for measuring an efficiency variance?
A) Efficiency Variance = (Actual Quantity + Standard Quantity) - Standard Cost
B) Efficiency Variance = (Actual Quantity × Standard Quantity) / Standard Cost
C) Efficiency Variance = (Actual Quantity / Standard Quantity) × Standard Cost
D) Efficiency Variance = (Actual Quantity - Standard Quantity) × Standard Cost
Q2) 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
Q3) Top managers of Marshall Industries predicted annual sales of 23,600 units of its product at a unit price of $5.00. Actual sales for the year were 22,800 units at $5.50 each. Variable costs were budgeted at $2.45 per unit, and actual variable costs were $2.40 per unit. Actual fixed costs of $45,000 exceeded budgeted fixed costs by $2,000. Prepare Marshall's flexible budget performance report.
Q4) 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) The manager of which of the following centers has the authority to open new stores or close existing ones?
A) cost center
B) profit center
C) investment center
D) revenue center
Q2) When operating at capacity, a market-based transfer price should be used.
A)True
B)False
Q3) Residual income compares the division's actual operating income with the minimum operating income expected by top management for the given size of the division's average total assets.
A)True
B)False
Q4) Flexible budgets use budgeted (or standard) costs at the actual level of activity.
A)True
B)False
Q5) Explain the difference between a controllable and a noncontrollable cost.
Q6) List two objectives in setting transfer prices.
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Chapter 25: Short-Term Business Decisions
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Q1) Assuming there are no other significant considerations, a product line with a negative contribution margin should be dropped.
A)True
B)False
Q2) Pastryworks Company manufactures two products-toaster ovens and bread machines. The following data are available: \[\begin{array} { | l | r | r | }
\hline & \text { Toaster Ovens } & \text { Bread Machines } \\
\hline \text { Sales price } & \$ 100 & \$ 160 \\
\hline \text { Variable costs } & \$ 40 & \$ 60 \\
\hline
\end{array}\] Pastryworks can manufacture six toaster ovens per machine hour and four bread machines per machine hour. Pastryworks' production capacity is 1600 machine hours per month. What is the contribution margin per machine hour for toaster ovens? (Round machine hour per unit to two decimal places and your final answer to the nearest whole dollar.)
A) $360
B) $25
C) $10
D) $400
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Chapter 26: Capital Investment Decisions
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Q1) Many service, merchandising, and manufacturing firms use discounted cash flow methods to make capital investment decisions.
A)True
B)False
Q2) Soraya Set Designs Inc., has received an award which entitles it to receive annual payments of $10,000 at the end of each year for the next ten years. Which of the following tables is used to calculate today's value of this award?
A) Present Value of $1
B) Present Value of an Ordinary Annuity of $1
C) Future Value of $1
D) Future Value of an Ordinary Annuity of $1
Q3) List three cash inflows and three cash outflows for capital investments.
\[\begin{array} { | l | l | }
\hline \text { Cash inflows } & \text { Cash outflows } \\
\hline & \\
\hline & \\
\hline & \\
\hline
\end{array}\]
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Chapter 27: Understanding Accounting Information Systems
and their Components
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Q1) A computerized system uses software to process transactions. Thus employees are no longer required to manually journalize and post transactions to the accounts.
A)True
B)False
Q2) When using a periodic inventory system, the Merchandise Inventory DR column, in the purchases journal, is replaced with a column titled Cost of Goods Sold DR.
A)True
B)False
Q3) Flexibility
A)Provides information that will improve decision making and reduce uncertainty.
B)Benefits received outweigh the cost of the system.
C)Works smoothly with the business's employees and organization structure.
D)Can accommodate changes in the business over time.
E)Provides safeguards for a business's assets and reduces the likelihood of fraud and errors.
Q4) The cash disbursements journal is also called the check register.
A)True
B)False
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