Managerial Accounting (Introductory level)
Final Test Solutions
Course Introduction
Managerial Accounting (Introductory level) provides students with a foundational understanding of how accounting information is used within organizations to aid in planning, controlling, and decision-making. The course covers basic cost concepts, budgeting, variance analysis, and performance measurement, as well as introduces students to various tools and techniques used in managerial decision processes. Emphasis is placed on real-world applications and the role of managerial accountants in supporting business strategies and operations. Through case studies and practical examples, students learn to analyze and interpret accounting data to make informed business decisions.
Recommended Textbook
Horngrens Financial Accounting 8th Edition by Tracie Nobles
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Chapter 1: The Role of Accounting in Decision Making
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Q1) An investor is someone who lends money to a business.
A)True
B)False
Answer: False
Q2) A business settles a liability by making a payment with cash.How does paying this liability affect the accounting equation?
A)Liabilities decrease;owners' equity increases.
B)Assets increase;liabilities increase.
C)Assets increase;liabilities decrease.
D)Assets decrease;liabilities decrease.
Answer: D
Q3) The income statement shows whether or not a business can generate enough cash to pay its liabilities.
A)True
B)False
Answer: False
Q4) Owner's drawings are the expenses of a business.
A)True
B)False
Answer: False
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Chapter 2: Recording Business Transactions
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Q1) When recording a transaction in a journal,the credit side is entered first,followed by the debit side.
A)True
B)False
Answer: False
Q2) For Drawings,the category of account and its normal balance are:
A)Owners' equity and a credit balance.
B)Liabilities and a credit balance.
C)Assets and a credit balance.
D)Owners' equity and a debit balance.
Answer: D
Q3) A listing of all account titles in numerical order is a(n):
A)ledger.
B)journal.
C)chart of accounts.
D)income statement.
Answer: C
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Page 4
Chapter 3: The Adjusting Process
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Sample Questions
Q1) Smith borrowed $24 000 on a one-year Loan payable with an interest rate of 10% per year on 1 June.He will repay the principal and interest at the end of the one-year period.Smith makes accrual adjustments at the end of each month.He should record interest expense of $2 400 on 30 June.
A)True
B)False
Answer: False
Q2) Entries that record an expense before the cash is paid are:
A)unearned revenues.
B)prepaid expenses.
C)accrued expenses.
D)accrued revenues.
Answer: C
Q3) Understating expenses occurs by:
A)omitting depreciation expense at the end of the year.
B)recording depreciation expense twice at the end of the year.
C)recording depreciation over an estimated life of an equipment.
D)paying in advance for insurance and creating a prepaid insurance account.
Answer: A
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Page 5
Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Calculate the current ratio using the following information: \[\begin{array} { | l | l | }
\hline \text { Cash } & \$ 7000 \\
\hline \text { Accounts receivable } & 1400 \\
\hline \text { Prepaid rent } & 800 \\
\hline \text { Land } & 20,000 \\
\hline \text { Equipment } & 6000 \\
\hline \text { Accumulated depreciation } & 1200 \\
\hline \text { Accounts payable } & 4000 \\
\hline \text { Salaries payable } & 800 \\
\hline \text { Loan payable, non-current } & 10,000 \\
\hline
\end{array}\]
A)2.3
B)1.92
C)1.32
D)1.75
Q2) The current ratio shows the profitability of a firm.
A)True
B)False
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Chapter 5: Retailing Operations
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Sample Questions
Q1) Under a perpetual inventory system,which of the following would NOT be required?
A)A weekly count of the inventory
B)Updating the inventory balance with each sale
C)Detailed inventory records
D)Recording cost of sales with each sale
Q2) Which of the following assets MUST a retailing business have for daily operations?
A)Accounts receivable
B)Equipment
C)Prepaid insurance
D)Inventory
Q3) Freight out is an addition to the Inventory account if the firm uses the perpetual inventory method.
A)True
B)False
Q4) The entry to close Sales discounts and Sales returns and allowances results in a debit to Income summary.
A)True
B)False
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Chapter 6: Retail Inventory
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Sample Questions
Q1) Estimated ending inventory can be computed by subtracting Estimated Cost of sales from Cost of goods available for sale.
A)True
B)False
Q2) A company is uncertain whether a complex transaction should be recorded as an asset or as an expense.Under the conservatism principle,they should choose to treat it as an asset.
A)True
B)False
Q3) Which of the following inventory costing methods is based on the actual cost of each particular unit of inventory?
A)Specific unit cost
B)First-in,first-out
C)Last-in,first-out
D)Average cost
Q4) Ending inventory equals the number of units on hand multiplied by the unit cost.
A)True
B)False
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Chapter 7: Accounting Information Systems
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Sample Questions
Q1) The final stage of data processing for an accounting system is the:
A)preparation of the special journals.
B)posting of transactions to the ledger accounts.
C)generation of the accounting reports.
D)preparation of the trial balance.
Q2) Big Industries purchased products from Small Suppliers,paying $5 000 in cash and promising to pay the remaining $5 000 in 30 days.Assuming the use of special journals,this entry would be recorded by Big Industries in the:
A)purchases journal.
B)general journal.
C)cash payments journal.
D)Both A and C
Q3) A well-designed accounting system must be able to accommodate change. A)True
B)False
Q4) The purchase of equipment for cash would be recorded in the: A)sales journal.
B)purchases journal.
C)general journal.
D)cash payments journal.
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Chapter 8: Internal Control and Cash
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Q1) As long as the same person deposits customer cheques and records the deposits into the ledger,there will be good internal control over cash receipts.
A)True
B)False
Q2) Which of the following describes the internal control procedure assignment of responsibilities?
A)To validate its accounting records,a company should have an audit by an external accountant.
B)The external auditors will monitor internal controls.
C)The company should separate the custody of assets from accounting.
D)Have clearly assigned responsibilities for each position.
Q3) The bank recorded a $2 000 deposit as $200.How would this information be included on the bank reconciliation?
A)An addition on the bank side
B)A deduction on the book side
C)A deduction on the bank side
D)An addition on the book side
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Chapter 9: Receivables
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Sample Questions
Q1) A newly created design business called Smart Art is just finishing up its first year of operations.During the year,there were credit sales of $40,000 and collections of credit sales of $33,000.One account for $675 was written off.Smart Art uses the ageing method to account for bad debts expense.It has estimated $275 as uncollectable at year-end.At the end of the year,what is the ending balance in the Bad debts expense account?
A)$6050
B)$275
C)$675
D)$950
Q2) A company has net credit sales of $1,200,000,beginning net accounts receivable of $260,000 and ending net accounts receivable of $203,000.What is the days' sales in receivables? Use a 365-day year.(Round to the nearest day. )
A)62 days
B)79 days
C)70 days
D)141 days
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Chapter 10: Non-Current Assets: Property, Plant and Equipment, and Intangibles
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Sample Questions
Q1) A company's accountant capitalises a payment that should be recorded as an expense.Which of the following is TRUE?
A)Revenues are understated
B)Profit is overstated.
C)Liabilities are overstated.
D)Assets are understated.
Q2) If the sales price of an item of property,plant and equipment is lower than the carrying amount,there will be a loss on sale.
A)True
B)False
Q3) If an asset's physical condition deteriorates more rapidly than would be reflected by normal depreciation,that is referred to as:
A)recording error.
B)accelerated depreciation.
C)asset disposal.
D)asset impairment.
Q4) When an asset is fully depreciated,the residual value must be written off.
A)True
B)False
12
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Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) Rocco worked 46 hours at his job during the first week of March 2016.He is paid $23.00 per hour and receives overtime at the rate of time-and-a-half for hours worked over 40.Rocco pays income taxes at 15% and 5.65% for superannuation and Medicare.All of his income is taxable.What is Rocco's net pay?
A)$766.47
B)$957.95
C)$758.06
D)$894.27
Q2) Which of the following principles requires that warranty expense be recorded in the period that revenue is recorded?
A)Consistency principle
B)Matching principle
C)Materiality concept
D)Profit recognition principle
Q3) Which of the following is included in the entry to record warranty expense?
A)A credit to Inventory
B)A credit to Warranty expense
C)A debit to Warranty expense
D)A debit to Estimated warranty payable
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Page 13
Chapter 12: Non-Current Liabilities, Debentures Payable
and Classification of Liabilities on the Balance Sheet
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Q1) Accounts payable is always shown on the balance sheet in current liabilities. A)True
B)False
Q2) The Cases Company issues $800 000 of 7%,10-year debentures on 31 March 2016.The debenture pays interest on 31 March and 30 September.Which of the following statements is TRUE?
A)If the market rate of interest is 8%,the debentures will issue at a discount.
B)If the market rate of interest is 8%,the debentures will issue at a premium.
C)If the market rate of interest is 8%,the debentures will issue at par.
D)If the market rate of interest is 8%,the debentures will issue above par.
Q3) On 1 January 2017,Carter Sales issued $27,000 in debentures for $33,800.They were eight year debentures with a stated rate of 14% and pay semiannual interest.Carter Sales uses the straight-line method to amortise the debenture premium.On 30 June 2017,when Carter makes the first payment to investors,how much will they report as Interest expense? (Round to the nearest dollar. )
A)$5335
B)$1480
C)$1890
D)$1465
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Chapter 13: Partnerships
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Q1) When a new person wishes to be admitted to an existing partnership on an equal profit-sharing basis,the amount the new person must invest to be admitted is not necessarily tied to the total capital of the partnership.
A)True
B)False
Q2) Which of the following statements MOST accurately describes the withdrawal of a partner at book value?
A)Withdrawing partner takes a portion of the non-current assets valued at their net book value.
B)Withdrawing partner takes a payment equal to his or her capital balance.
C)Withdrawing partner takes his or her proportionate share of partnership assets.
D)Withdrawing partner takes a payment equal to his or her proportion of the partnership cash balance.
Q3) If the partnership agreement does NOT specifically state how profits and losses are to be distributed,then the partners will share profits and losses equally.
A)True
B)False
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Chapter 14: Companies: Formation and Shareholders
Equity
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Q1) Deferred tax would normally arise from which of the following situations?
A)When a company pays off all of its debts at the end of the year
B)When a company pays income tax quarterly versus yearly
C)When a company makes a different choice for its tax return versus its book net profit
D)When a company withholds income tax from its employees' payroll
Q2) Which of the following represents one of the basic rights of shareholders?
A)Shareholders may authorise a business contract on behalf of the company.
B)Shareholders can maintain their proportionate ownership if the company issues new shares.
C)Shareholders may sell their shares back to the company if they wish.
D)Shareholders may determine at what price the company issues shares.
Q3) On 1 November 2016,Oster Company declared a dividend of $4.75 per share.Oster Ltd has 20,000 ordinary shares outstanding and no preference shares.The date of record is 15 November and the payment date is 30 November 2016.Which of the following is the journal entry needed on 30 November?
A)debit Dividends payable,ordinary $95,000 and credit Cash $95,000
B)debit Cash $95,000 and credit Dividends payable,ordinary $95,000
C)debit Retained earnings $95,000 and credit Cash $95,000
D)debit Retained earnings $95,000 and credit Dividends payable,ordinary $95,000
Page 16
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Chapter 15: Companies: Capital Management and the Income Statement
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Q1) If a company buys back shares,which of the following is TRUE?
A)Total equity will decrease.
B)Total equity will increase.
C)The number of issued shares will increase.
D)The company records a gain or loss on the buy-back.
Q2) The entry to record an appropriation of retained earnings requires a debit to Retained earnings and a credit to Cash.
A)True
B)False
Q3) Which of the following BEST describes the appropriation of retained earnings?
A)Restricting cash dividends or share buy-backs so that the company maintains adequate levels of equity
B)Limiting company transactions in order to boost earnings and profits
C)Designating certain amounts of retained earnings for cash dividends to be paid out to shareholders
D)Earmarking certain amounts for specific business purposes,such as for growth or expansion projects
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Chapter 16: The Cash Flow Statement
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Q1) Qtopia Company uses the direct method to prepare its cash flow statement.It has reported Cost of sales of $70 000 on its income statement for the year 2016.If the balance in the inventory account has gone up by $2 000 during the year,then $2 000 will have to be added to $70 000 as part of the process to calculate payments to suppliers for inventory purchases.
A)True
B)False
Q2) The investing activities section of the cash flow statement reflects the cash flows that increase or decrease non-current assets.
A)True
B)False
Q3) The Australian Accounting Standards require the cash flow statement to be prepared using either the direct method or the indirect method.
A)True
B)False
Q4) Buying property,plant and equipment would be considered a cash outflow from financing.
A)True
B)False
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Chapter 17: The Framework of Accounting
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Q1) In 2017,Amana sold 10 washing machines,which cost $700 each,for a price of $1 300 each.All sales are made on credit and $7 000 was collected in 2017.Using the sales method,how much gross profit will Amana recognise in 2017?
A)$6 000
B)$7 000
C)$13 000
D)$6 800
Q2) AASB 101 requires a summary of significant accounting policies to be included in the director's report that accompanies the financial statements.
A)True
B)False
Q3) All entities using the same terms to describe the elements of financial statements is an example of the:
A)timeliness principle.
B)comparability principle.
C)materiality principle.
D)reliability principle.
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Chapter 18: Financial Statement Analysis
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Q1) Horizontal analysis compares each item in the income statement to the net sales amount.
A)True
B)False
Q2) A company reports total assets of $900,000 and shareholders' equity of $600,000.Calculate the debt ratio.
A)33.33%
B)50%
C)66.67%
D)40%
Q3) Which of the following is NOT true of benchmarking?
A)It uses vertical analysis as its primary methodology.
B)It is used to compare a company against its competitors.
C)It is used to compare companies of different sizes.
D)It is used to compare a company's results against industry averages.
Q4) Benchmarking is often done by comparing a company against either a key competitor or against the industry average.
A)True
B)False
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