Managerial Accounting Exam Review
Course Introduction
Managerial Accounting focuses on the internal use of accounting information by managers to aid in planning, controlling, and decision-making within organizations. This course covers cost behavior analysis, budgeting, performance evaluation, and various tools and techniques for analyzing financial and non-financial data. Students will learn how to prepare and interpret managerial reports, utilize standard costing, and understand the role of accounting in strategic management. Emphasis is placed on providing information that helps management optimize operational efficiency and achieve organizational goals.
Recommended Textbook
Fundamental Accounting Principles 23rd Edition by John Wild
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Page 2
Chapter 1: Accounting in Business
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Sample Questions
Q1) Understanding generally accepted accounting principles is not necessary to effectively use and interpret financial statements.
A)True
B)False
Answer: False
Q2) The business entity principle means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold.
A)True
B)False
Answer: False
Q3) If equity is $300,000 and liabilities are $192,000, then assets equal:
A) $300,000.
B) $792,000.
C) $192,000.
D) $492,000.
E) $108,000.
Answer: D
Q4) A ________ is a business that is owned by only one person. Answer: Sole proprietorship
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Chapter 2: Analyzing and Recording Transactions
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Sample Questions
Q1) A general journal is:
A) A ledger in which amounts are posted from a balance column account.
B) A complete record of all transactions in chronological order from which transaction amounts are posted to the ledger accounts.
C) Not required if T-accounts are used.
D) A book of final entry because financial statements are prepared from it.
E) Not necessary in electronic accounting systems.
Answer: B
Q2) Unearned revenues are classified as liabilities.
A)True
B)False
Answer: True
Q3) A credit is used to record an increase in all of the following accounts except:
A) Service Revenue
B) Owner's Capital
C) Unearned Revenue
D) Accounts Payable
E) Wages Expense
Answer: E
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Page 4
Chapter 3: Adjusting Accounts and Preparing Financial Statements
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Sample Questions
Q1) Under the accrual basis of accounting, adjustments are often made for prepaid expenses and unearned revenues.
A)True
B)False
Answer: True
Q2) Recording revenues early overstates current-period income; recording revenues late understates current period income.
A)True B)False
Answer: True
Q3) Companies experiencing seasonal variations in sales often choose a fiscal year corresponding to their ________ year.
Answer: natural business
Q4) An____________ is a listing of all of the accounts in the ledger with their account balances before adjustments are made. Answer: unadjusted trial balance
Q5) Profit margin =____________ divided by net sales. Answer: Net Income
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Chapter 4: Completing the Accounting Cycle
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Q1) How is a classified balance sheet different from an unclassified balance sheet? List the usual order of the categories on a classified balance sheet.
Q2) The first five steps in the accounting cycle include analyzing transactions, journalizing, posting, preparing an unadjusted trial balance, and recording adjusting entries.
A)True
B)False
Q3) The closing process resets ________, ________, and ________ account balances to zero at the end of each accounting period.
Q4) What is the purpose of closing entries? Describe the closing process.
Q5) All necessary amounts to prepare the balance sheet, including ending owner's capital, can be found in the Balance Sheet columns of the work sheet.
A)True
B)False
Q6) An expense account is normally closed by debiting Income Summary and crediting the expense account.
A)True
B)False
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Chapter 5: Accounting for Merchandising Operations
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Sample Questions
Q1) A company's net sales are $775,420, its costs of goods sold are $413,890, and its net income is $117,220. Its gross margin ratio equals:
A) 40.5%.
B) 46.6%.
C) 31.5%.
D) 53.4%.
E) 28.3%.
Q2) On August 26, it paid the full amount due. The correct journal entry to record the merchandise return on August 11 is:
A) Debit Accounts Payable $1,500; credit Purchase Returns $1,500.
B) Debit Accounts Payable $1,500; credit Cash $1,500.
C) Debit Accounts Payable $1,500; credit Merchandise Inventory $1,500.
D) Debit Merchandise Inventory $1,500; credit Cash $1,500.
E) Debit Merchandise Inventory $1,500; credit Sales Returns $1,500.
Q3) Cost of goods sold is also called cost of sales.
A)True
B)False
Q4) What is gross margin ratio? How is it used as an indicator of profitability?
Q5) Describe the key attributes of inventory for a merchandising company.
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Chapter 6: Inventories and Cost of Sales
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Sample Questions
Q1) A company reported the following data related to its ending inventory:
\[\begin{array} { | l | l | r | r | }
\hline \text { Product } & \text { Units Available } & \text { Cost } & \text { Market } \\
\hline 849 & 100 & \$ 10 & \$ 11 \\
\hline 842 & 75 & 16 & 14 \\
\hline 847 & 60 & 14 & 13 \\
\hline 860 & 40 & 16 & 20 \\
\hline
\end{array}\] Calculate the lower-of-cost-or-market on the inventory applied separately to each product.
Q2) A company's cost of inventory was $219,500. Due to phenomenal demand the market value of its inventory increased to $221,700. This company should record the inventory at its market value.
A)True
B)False
Q3) Patrick Randall of Sports Supplies finds that maintaining appropriate levels of inventories while controlling costs is a major challenge. What are the challenges Patrick refers to?
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Page 8
Chapter 7: Accounting Information Systems
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Sample Questions
Q1) The basic components of an accounting information system include all of the following except:
A) Source documents.
B) Information storage.
C) Warehouses.
D) Information processors.
E) Output devices.
Q2) When a company uses special journals, the general journal is used to record selected transactions and events including:
A) Credit purchases.
B) Closing entries.
C) Sales on credit.
D) Credit sales.
E) Cash payments.
Q3) The Accounts Payable account in the general ledger is:
A) The subsidiary account to the purchases journal.
B) A controlling account for the subsidiary accounts payable ledger.
C) Part of a special journal.
D) The account that controls the purchases journal.
E) Part of a subsidiary ledger.
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Chapter 8: Cash and Internal Controls
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Sample Questions
Q1) The following information is taken from Reagan Company's December 31 balance sheet: \[\begin{array} { | l | r | }
\hline \text { Cash and cash equivalents } & \$ 8,419 \\
\hline \text { Accounts receivable } & 70,422 \\
\hline \text { Merchandise inventories } & 60,362 \\
\hline \text { Prepaid expens es } & 4,100 \\
\hline \text { Accounts payable } & \$ 14,950 \\
\hline \text { Notes payable } & 8 6 , 6 3 8 \\
\hline \text { Other current liabilities } & 9,500 \\
\hline
\end{array}\] If net credit sales for the current year were $612,000, the firm's days' sales uncollected for the year is: (Use 365 days a year.)
A) 60 days
B) 85 days
C) 154 days
D) 42 days
E) 70 days
Q2) Describe a bank reconciliation and discuss its purpose.
Q3) A ________ is a document explaining the payment of a check.
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Page 10
Chapter 9: Accounting for Receivables
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Sample Questions
Q1) Kenai Company sold $600 of merchandise to a customer who used a National Bank credit card. National Bank deducts a 3% service charge for sales on its credit cards. Kenai electronically remits the credit card sales receipts to the credit card company and receives payment immediately. The journal entry to record the collection from the credit card company would be:
A) Debit Accounts Receivable-National $582; debit Credit Card Expense $18 and credit Sales $600.
B) Debit Cash of $618; credit Credit Card Expense $18 and credit Sales $600.
C) Debit Cash of $618 and credit Accounts Receivable-National $618.
D) Debit Cash $582 and credit Sales $582.
E) Debit Cash $582; debit Credit Card Expense $18 and credit Sales $600.
Q2) A finance company or bank that purchases and takes ownership of another company's accounts receivable is called a:
A) Payee.
B) Pledgee.
C) Payer.
D) Pledger.
E) Factor.
Q3) What is the maturity date of a 120-day note receivable dated March 5?
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Page 11
Chapter 10: Plant Assets Natural Resoures and Intangibles
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Sample Questions
Q1) The cost of land would not include:
A) Government assessments.
B) Purchase price.
C) Cost of parking lot lighting.
D) Fees for insuring the title.
E) Costs of removing existing structures.
Q2) The specific meaning of goodwill in accounting is:
A) The cost of developing, maintaining, or enhancing the value of a trademark.
B) The amount by which a company's value exceeds the value of its individual assets and liabilities.
C) The support of the board of directors for the operating decisions of management.
D) Long term assets held as investment.
E) Rights granted an entity to deliver a product or service under specified conditions.
Q3) Gain or loss on the disposal of assets is determined by comparing the disposed asset's book value to the market value of any assets received.
A)True
B)False
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Chapter 11: Current Liabilities and Payroll Accounting
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Sample Questions
Q1) A company's has fixed interest expense of $52,000, income taxes expense of $121,000, and net income of $281,000. The company's times interest earned ratio equals:
A) 7.73.
B) 0.11.
C) 2.33.
D) 8.73.
E) 5.40.
Q2) An employee earned $43,300 working for an employer in the current year. The current rate for FICA Social Security is 6.2% payable on earnings up to $118,500 maximum per year and the rate for FICA Medicare 1.45%. The employer's total FICA payroll tax for this employee is:
A) $3,312.45.
B) $5,638.05.
C) $8,950.50.
D) $2,684.60.
E) $0, since the FICA tax is only deducted from an employee's pay.
Q3) A single liability cannot be divided between current and noncurrent liabilities.
A)True
B)False
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Page 13
Chapter 12: Accounting for Partnerships
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Sample Questions
Q1) Peters and Chong are partners and share equally in income or loss. Peters' current capital balance is $140,000 and Chong's is $130,000. Peters and Chong agree to accept Aaron with a 30% interest in the partnership. Aaron invests $98,000 in the partnership. The amount credited to Aaron's capital account is:
A) $114,533.
B) $81,000.
C) $110,400.
D) $98,000.
E) $102,600.
Q2) If a partner withdraws from a partnership and the recorded value of his or her equity is overstated, then a bonus goes to ; if the recorded value of the withdrawing partner's equity is understated, then a bonus goes to ________.
Q3) In a limited partnership the general partner has unlimited liability.
A)True
B)False
Q4) When partners invest in a partnership, their capital accounts are debited for the amount invested.
A)True
B)False
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Chapter 13: Accounting for Corporations
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Sample Questions
Q1) Stated value of no-par stock is:
A) The difference between the par value of stock and the amount below or above par value paid-in by the stockholder.
B) An amount assigned to no-par stock by the corporation's board of directors.
C) The market value of the stock on the date of issuance.
D) An amount assigned to par value stock by the state of incorporation.
E) Another name for redemption value.
Q2) Underwood Company's only treasury stock transactions for the current year follow: (1) 2,000 shares of its common stock were purchased on June 1 for $80,000; (2) On July 1 it reissued 500 of these shares at $45 per share; (3) On August 1 it reissued an additional 500 treasury shares at $38 per share.
1) Prepare the journal entries required to record these transactions.
2) Calculate the balance in Paid-in Capital, Treasury Stock, on September 1 assuming its beginning-year balance is zero.
Q3) The group responsible for and have final authority for managing a corporation's activities is (are) the ________.
Q4) Stock that has been issued and is held by stockholders is ________ stock.
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Page 15
Chapter 14: Long-Term Liabilities
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Sample Questions
Q1) An annuity is a series of equal payments at equal time intervals.
A)True
B)False
Q2) The party that has the right to exercise a call option on callable bonds is:
A) The bondholder.
B) The bond indenture.
C) The bond trustee.
D) The bond issuer.
E) The bond underwriter.
Q3) An advantage of lease financing is the lack of an immediate large cash payment for the leased asset.
A)True
B)False
Q4) A premium on bonds occurs when bonds carry a contract rate greater than the market rate at issuance.
A)True
B)False
Q5) A discount reduces the interest expense of a bond over its life.
A)True
B)False
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Chapter 15: Investments
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Sample Questions
Q1) At the end of the accounting period, the owners of debt securities:
A) Must record a gain or loss on the interest income earned.
B) Must report the dividend income accrued on the debt securities.
C) Must record any interest earned on the debt securities during the period.
D) Must retire the debt.
E) Must record a gain or loss on the dividend income earned.
Q2) Long-term investments in available-for-sale securities are reported at fair value on the balance sheet.
A)True
B)False
Q3) An investor purchased $50,000 of 10-year bonds it intends to hold to maturity. The investor's journal entry to record the purchase is a debit to Long-Term Investments for $50,000 and a credit to Cash for $50,000.
A)True
B)False
Q4) Investments in equity securities where the investor has a controlling influence are accounted for using the ________.
Q5) Long-term investments in available-for-sale securities are reported at their ________ on the balance sheet.
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Chapter 16: Reporting the Statement of Cash Flows
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Q1) Use the following information to calculate cash received from dividends: \(\begin{array}{llr}
\text { Dividends } & \text { revenue } & \$ 29,800 \\
\text { Dividends } & \text { receivable, January } 1 & 2,600 \\
\text { Dividends } & \text { receivable, December } 31 & 3,400 \end{array}\)
A) $26,400.
B) $32,400.
C) $29,000.
D) $29,800.
E) $30,600.
Q2) Use the following information to calculate the net cash provided or used by financing activities for the Streams Corporation:
(a) Net income, $10,000
(b) Sold common stock for $40,000 cash
(c) Paid cash dividend of $13,000
(d) Paid bond payable, $28,000
(e) Purchased equipment for $12,000 cash
Q3) Explain how cash flows from investing and financing activities are determined.
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Chapter 17: Analysis of Financial Statements
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Q1) Refer to the following selected financial information from McCormik, LLC. Compute the company's days' sales uncollected for Year 2. (Use 365 days a year.) \[\begin{array}
{ | l | r | r | }
\hline & { \text { Year 2 } } & { \text { Year 1 } } \\
\hline \text { Cash } & \$ 37,500 &3 6 , 8 5 0 \\
\hline \text { Short-term investments } & 90,000 & 90,000 \\
\hline \text { Accounts receivable, net } & 85,500 & 86,250 \\
\hline \text { Merchandise inventory } & 121,000 & 117,000 \\
\hline \text { Prepaid expenses } & 12,100 & 13,500 \\
\hline \text { Plant assets } & 388,000 & 392,000 \\
\hline \text { Accounts payable } & 113,400 & 111.750 \\
\hline \text { Net sales } & 711,000 & 706,000 \\
\hline \text { Cost of goods sold } & 390,000 & 385,500 \\
\hline
\end{array}\]
A) 43.9.
B) 42.3.
C) 80.0.
D) 113.3.
E) 46.2.
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Page 19
Chapter 18: Managerial Accounting Concepts and Principles
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Q1) Which of the following costs is not included in factory overhead?
A) Manufacturing supplies used.
B) Indirect labor.
C) Depreciation of manufacturing equipment.
D) Direct materials.
E) Payroll taxes on the wages of factory supervisors.
Q2) ________ are beliefs that distinguish right from wrong.
Q3) Using the information below for Sundar Company; determine the cost of goods manufactured during the current year: \[\begin{array} { l | c }
\text { Direct materials used } & \$ 19,000 \\
\hline \text { Direct labor used } & 24,500 \\
\hline \text { Factory overhead } & 55,100 \\
\hline \text { Beginning work in process } & 10,700 \\
\hline \text { Ending work in process } & 11,300 \end{array}\]
A) $79,000.
B) $98,600.
C) $43,500.
D) $98,000.
E) $42,900.
Page 20
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Chapter 19: Job Order Costing
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Q1) In comparison to a general accounting system, a cost accounting system for a manufacturing company places an emphasis on:
A) Total costs.
B) Continually updating costs of materials, work in process, and finished goods inventories.
C) Periodic inventory counts.
D) Products and average costs.
E) Large volume operations involving standardized products.
Q2) The journal entry to record the payment of the factory payroll is:
A) Debit Work in Process Inventory $110,000; credit Cash $150,000.
B) Debit Factory Overhead $40,000; credit Factory Wages Payable $40,000.
C) Debit Work in Process Inventory $150,000; credit Factory Wages Payable $150,000.
D) Debit Work in Process Inventory $150,000; credit Cash $150,000.
E) Debit Factory Wages Payable $150,000; credit Cash $150,000.
Q3) When factory payroll is assigned to specific jobs, ________ is debited.
Q4) Describe how materials flow through a job order costing system, and identify the key documents in the system.
Q5) A ________ is a separate record maintained for each job.
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Chapter 20: Process Costing
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Sample Questions
Q1) Calculate the equivalent units of conversion.
A) 144,000
B) 110,000
C) 140,000
D) 130,250
E) 165,000
Q2) If indirect materials costing $37,500 that were not clearly linked with any specific production process or department were used during a reporting period, the following journal entry would be recorded in the process costing system:
\(\begin{array}{llr}
\text { Factory Overhead} &37,500\\
\text { Raw Materials Inventory } &&37,500\\ \end{array}\)
A)True B)False
Q3) A ________ contains features of both process and job order costing systems.
Q4) The cost object in a process costing system is the specific job. A)True B)False
Page 22
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Chapter 21: Cost-Volume-Profit Analysis
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Q1) Scatter diagrams plot volume (units) on the horizontal axis and cost on the vertical axis.
A)True
B)False
Q2) While the total amount of fixed cost remains constant with the level of production, fixed cost per unit changes as volume changes.
A)True
B)False
Q3) Compute the contribution margin per unit if the machine is purchased.
A) $26.00.
B) $22.50.
C) $28.50.
D) $29.50.
E) $27.50.
Q4) A graphic depiction of the break-even point is known as a cost-volume-profit (CVP) chart.
A)True
B)False
Q5) What is the high-low method? Briefly describe how it is applied.
Page 23
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Chapter 22: Master Budgets and Planning
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Q1) Assuming a bottom-up process of budget development, which of the following should be initially responsible for developing sales estimates?
A) The accounting department.
B) Top management.
C) The budget committee.
D) The marketing department.
E) The sales department.
Q2) Masterson Company's budgeted production calls for 56,000 liters in April and 52,000 liters in May of a key raw material that costs $1.85 per liter. Each month's ending raw materials inventory should equal 30% of the following month's budgeted materials. The April 1 inventory for this material is 16,800 liters. What is the budgeted materials purchases for April?
A) $103,600.
B) $132,460.
C) $106,560.
D) $101,380.
E) $72,520.
Q3) The ________ shows expected cash inflows and outflows during the budget period.
Q4) What is a sales budget? How is the sales budget prepared?
Page 24
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Chapter 23: Flexible Budgets and Standard Costs
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Q1) Grant Co. uses the following standard to produce a single unit of its product: Variable overhead (2 hrs. per unit @ $4/hr.) Actual data for the month show total variable overhead costs of $190,000, and 23,000 units produced. The total variable overhead variance is:
A) $78,000F.
B) $78,000U.
C) $6,000U.
D) $0.
E) $6,000F.
Q2) Use the following data to find the total direct labor cost variance if the company produced 3,500 units during the period. Direct labor standard (4 hrs. @ $7/hr.) $ 28 per unit Actual hours worked 12,250
Actual rate per hour $ 7.50
A) $12,250 favorable.
B) $7,000 unfavorable.
C) $6,125 favorable.
D) $7,000 favorable.
E) $6,125 unfavorable.
Q3) What are the four steps in the effective management of variance analysis?
Q4) How are unfavorable variances recorded? How are favorable variances recorded?
Page 25
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Chapter 24: Performance Measurement and Responsibility Accounting
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Q1) The following is a partially completed departmental expense allocation spreadsheet for Brickland. It reports the total amounts of direct and indirect expenses for its four departments. Purchasing department expenses are allocated to the operating departments on the basis of purchase orders. Maintenance department expenses are allocated based on square footage. Compute the amount of Maintenance department expense to be allocated to Fabrication. \(\begin{array}{lcccc} &\text { Purchasing }& \text { Maintenance }&\text { Fabrication }& \text { Assembly }\\
\text { Operating costs } & \$ 32,000 & \$ 18,000 & \$ 96,000 & \$ 62,000 \\
\text { No. of purchase orders } && & 16 & 4 \\
\text { Sq. ft. of space } & & &3,300 & 2,700 \end{array}\)
A) $6,400.
B) $25,600.
C) $8,100.
D) $9,900.
E) $9,000.
Q2) A ________ incurs costs without directly generating revenues.
Q3) Define joint costs and explain how joint costs can be allocated.
Page 26
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Chapter 25: Capital Budgeting and Managerial Decisions
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Q1) The process of analyzing alternative long-term investments and deciding which assets to acquire or sell is known as:
A) Variance analysis.
B) Planning and control.
C) Capital budgeting.
D) Managerial accounting.
E) Master budgeting.
Q2) The present value of an annuity of $1 for 3 years at 15% is 2.2832
The net present value of Investment B is:
A) $9,000.
B) $780.
C) $(5,918).
D) $(15,780).
E) $39,797.
Q3) Restating future cash flows in terms of their present value is called discounting.
A)True
B)False
Q4) The ________ is the rate that yields a net present value of zero for an investment.
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Chapter 26: Present and Future Values in Accounting
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Q1) An _ _ is a series of equal payments occurring at equal intervals.
Q2) A company has $46,000 today to invest in a fund that will earn 4% compounded annually. How much will the fund contain at the end of 6 years?
Q3) A company needs to have $150,000 in 5 years, and will create a fund to insure that the $150,000 will be available. If it can earn a 6% return compounded annually, how much must the company invest in the fund today to equal the $150,000 at the end of 5 years?
(<sup>PV</sup><sup> </sup><sup>of</sup><sup> </sup><sup>$1</sup>, <sup>FV</sup><sup> </sup><sup>of</sup><sup> </sup><sup>$1</sup>, <sup>PVA</sup><sup> </sup><sup>of</sup> <sup>$1</sup>, and <sup>FVA</sup><sup> </sup><sup>of</sup><sup> </sup><sup>$1</sup>) (Use appropriate factor(s) from the tables provided.)
A) $112,095
B) $141,000
C) $105,000
D) $100,000
E) $45,000
Q4) You are little late planning your retirement, but are looking forward to retiring in 10 years. You expect to save $6,000 a year at an annual rate of 8%. How much will you have accumulated when you retire?
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Chapter 27: Activity-Based Costing
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Sample Questions
Q1) According to the activity-based costing system, the total overhead cost of producing 430 units of A21W is:
A) $13,338.20
B) $11,121.40
C) $12,440.20
D) $12,215.70
E) $32,370.00
Q2) An activity-based cost allocation system:
A) Traces costs to products on the basis of activities performed on them.
B) Does not involve the level of detail and the number of allocations that companies make with traditional allocation methods.
C) Does not provide total unit cost data.
D) Does not provide for the allocation of any cost to products that cannot be directly traced to those products.
E) Is one form of a direct or variable costing system.
Q3) With activity-based costing, complex products are assigned a larger portion of overhead.
A)True
B)False
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