Managerial Accounting Pre-Test Questions
Course Introduction
Managerial Accounting focuses on the use of accounting information by managers within organizations to inform business decisions, plan and control operations, and evaluate performance. The course covers essential topics such as cost behavior, budgeting, performance measurement, variance analysis, and internal decision-making processes. Emphasizing practical applications, students learn how to interpret financial data, prepare relevant reports, and apply quantitative techniques to solve real-world management problems, ultimately supporting strategic planning and operational efficiency in various business environments.
Recommended Textbook
Horngrens Financial and Managerial Accounting 6th Edition by Tracie L. Nobles
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Page 2
Chapter 1: Accounting and the Business Environment
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Q1) The amount of net income is transferred from ________ to ________.
A)the income statement;the statement of retained earnings
B)the balance sheet;the statement of cash flows
C)the balance sheet;the income statement
D)the income statement;the statement of expenditures
Answer: A
Q2) Regarding generally accepted accounting principles (GAAP),which of the following statements is incorrect?
A)GAAP rests on a conceptual framework that identifies the objectives,characteristics,elements,and implementation of financial statements.
B)The primary objective of financial reporting is to provide information useful for making investment and lending decisions.
C)Relevant information is complete,neutral,and free from error.
D)GAAP is currently formulated by the Financial Accounting Standards Board.
Answer: C
Q3) What is the primary objective of financial reporting?
Answer: The primary objective of financial reporting is to provide information useful for making investment and lending decisions.
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3
Chapter 2: Recording Business Transactions
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Sample Questions
Q1) Which of the following accounts decreases with a credit?
A)Cash
B)Common Stock
C)Accounts Payable
D)Unearned Revenue
Answer: A
Q2) A business pays cash for dividends.Which of the following accounts is credited?
A)Common Stock
B)Dividends
C)Cash
D)Retained Earnings
Answer: C
Q3) An account that normally has a debit balance may occasionally have a credit balance.
A)True
B)False
Answer: True
Q4) Employees worked and a business paid salaries of $6,000 in cash.Record the transaction in the journal.
Answer: 11ea86ed_2d00_7ff0_8b27_5dd6b1197f37_TB3056_00
Page 4
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) On January 1,2017,the Accounts Receivable of Martha,Inc.had a debit balance of $150,000.During January,the company provided services for $400,000 on account.The company collected $240,000 from its customers on account in January.What was the ending balance in the Accounts Receivable account at the end of January?
A)$160,000
B)$550,000
C)$310,000
D)$400,000
Answer: C
Q2) The Pediatric Dental Corporation prepays the rent on its dental office.On July 1,the corporation paid $18,000 for 6 months of rent.The rent period begins on July 1.How much Rent Expense should the corporation record for the three months ended September 30 under the cash basis? Why?
Answer: Pediatric Dental should report Rent Expense of $18,000 because the expenses are recorded when cash is paid.
Q3) Prepaid Insurance is an asset account that appears on the balance sheet.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Which of the following adjusted balances would appear in the balance sheet credit column of a worksheet?
A)Rent Revenue
B)Insurance Expense
C)Salaries Payable
D)Equipment
Q2) The formula for computing the current ratio is ________.
A)Current ratio = Total Current assets / Total assets
B)Current ratio = Total Current assets / Total liabilities
C)Current ratio = Total Current assets / Total Stockholders' Equity
D)Current ratio = Total Current assets / Total Current liabilities
Q3) Reversing entries are used in conjunction with ________.
A)accrual-type adjustments
B)deferred revenues
C)deferred expenses
D)Unearned Revenue and Prepaid Rent
Q4) The Service Revenue account is a permanent account.
A)True
B)False
Q5) List the steps of the accounting cycle that take place at the end of the period.
Page 6
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Chapter 5: Merchandising Operations
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Q1) The operating cycle of a merchandiser begins when the company purchases inventory from a vendor and ends when the company then sells the inventory to a customer.
A)True
B)False
Q2) The financial statements under the periodic inventory system and the perpetual inventory system are the same.
A)True
B)False
Q3) Freight in is recorded in the Merchandise Inventory account if the purchaser uses the perpetual inventory system.
A)True
B)False
Q4) Under the new revenue recognition standards,companies recognize revenue when performance obligations associated with contracts are identified.
A)True
B)False
Q5) List four items from an invoice that are needed to record a purchase of merchandise inventory.
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Chapter 6: Merchandise Inventory
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Sample Questions
Q1) Second Street,Inc.has 7 units in ending merchandise inventory on December 31.The units were purchased in November for $180 each.The price lists from suppliers indicate the current replacement cost of the item to be $178 each.Which of the following statements is true of the effects of the adjustments to ending merchandise inventory and the cost of goods sold?
A)The cost of goods sold would increase by $2.
B)The cost of goods sold would not be affected.
C)The cost of goods sold would decrease by $14.
D)The cost of goods sold would increase by $14.
Q2) Using the LIFO 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
Q3) In a period of rising costs,the last-in,first-out (LIFO)method results in a higher cost of goods sold and a lower net income than the first-in,first-out (FIFO)method.
A)True
B)False
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Page 8
Chapter 7: Internal Control and Cash
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Sample Questions
Q1) To be IFRS compliant,foreign companies are not required to have their internal controls audited by outside auditors.
A)True
B)False
Q2) Companies process credit and debit card transactions internally.
A)True
B)False
Q3) Which of the following is a benefit provided by internal control?
A)ensuring timely collection of accounts receivables
B)ensuring that collusion will never happen
C)ensuring that a business is profitable
D)promoting operational efficiency
Q4) Check
A)Sent by the vendor after the inventory has been shipped to the purchaser.
B)Sent to the vendor when goods are ordered.
C)Prepared by the purchaser when the goods are received.
D)Sent to the vendor after all approving documents have been submitted.
Q5) List and briefly discuss the five components of internal control.
Q6) List the four steps,the proper order,of the purchasing and payment process.
Q7) Fifth National Bank requires mandatory vacations and job rotation.
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Chapter 8: Receivables
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Sample Questions
Q1) Under the allowance method,the entry to write off a receivable increases the amount of the Allowance for Bad Debts account.
A)True
B)False
Q2) At the beginning of 2018,Uptown Travel,Inc.has the following account balances: Accounts receivable $45,000 (Debit)
Allowance for Bad Debts $5,000 (Credit)
During the year,credit sales were $810,000.Cash collected on credit sales was $760,000,and $18,000 was written off.Uptown uses the aging-of-receivables method to record bad debts expense.The amount estimated as uncollectible was $30,000.The amount of Bad Debts Expense for 2018 is ________.
A)$43,000
B)$30,000
C)$13,000
D)$12,000
Q3) Interest is generally stated as a monthly rate on notes receivable.
A)True
B)False
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Chapter 9: Plant Assets, natural Resources, and Intangibles
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Q1) When a plant asset is sold for less than its book value,a gain is recorded.
A)True
B)False
Q2) Franchises are privileges granted by a business to sell goods and services under specified conditions.
A)True
B)False
Q3) All plant assets are depreciated.
A)True
B)False
Q4) The cost principle requires a business to record the assets acquired,or services received,at their actual cost.
A)True
B)False
Q5) The expected value of an asset at the end of its useful life is known as ________.
A)book value
B)residual value
C)carrying value
D)market value
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Chapter 10: Investments
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Sample Questions
Q1) Sparklers Services,Inc.pays $1,350,000 to acquire 35% of voting stock of Global Investments,Inc.on March 5,2018.When this transaction is recorded,the ________.
A)total equity will increase
B)total assets will increase
C)total assets will decrease
D)total cash will decrease
Q2) Securities are ________.
A)commonly traded on an exchange
B)assets traded between companies working in the same industry
C)owned by the investee
D)always considered to be long-term investments
Q3) A ________ ownership in the investee's voting stock can significantly influence the investee's decisions.
A)10 percent
B)5 percent to 10 percent
C)15 percent to 20 percent
D)20 percent to 50 percent
Q4) List and discuss two common reasons why companies invest in debt or equity securities.
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Chapter 11: Current Liabilities and Payroll
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Q1) Bill's gross pay for the week is $2150.His deduction for federal income tax is based on a rate of 25%.He has no voluntary deductions.His year-to-date pay is under the limit for OASDI.What is the amount of FICA tax that will be withheld from Bill's pay? (Assume a FICA-OASDI Tax of 6.2% and FICA-Medicare Tax of 1.45%.Round any intermediate calculations to two decimal places,and your final answer to the nearest dollar. )
A)$537.50
B)$164.48
C)$701.98
D)$136.50
Q2) When an employee takes a paid vacation,the Vacation Benefits Payable account will be decreased with a credit.
A)True
B)False
Q3) Contingencies that are probable but cannot be estimated are recorded as liabilities and disclosed in the notes to the financial statements.
A)True
B)False
Q4) What is a contingent liability? Provide two examples of contingencies.
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Chapter 12: Long-Term Liabilities
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Q1) The balance sheet shows the balance in Bonds Payable plus any discount or minus any premium.
A)True
B)False
Q2) On January 1,2018,Wonderland Sales issued $30,000 in bonds for $22,300.These are eight-year bonds with a stated interest rate of 12% and pay semiannual interest.Wonderland Sales uses the straight-line method to amortize the bond discount.What is the bond carrying amount after the first interest payment on June 30,2018? (Round your intermediate answers to the nearest dollar. )
A)$30,000
B)$18,931
C)$22,781
D)$26,631
Q3) The amount of cash interest the borrower pays each year is based on the
A)market conditions on the day of payment
B)market interest rate
C)stated interest rate
D)effective interest rate
Q4) What is the difference between simple interest and compound interest?
Page 14
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Chapter 13: Stockholders Equity
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Sample Questions
Q1) The declaration of a cash dividend does not create an obligation for the corporation.
A)True
B)False
Q2) A corporation has 10,000 shares of 20%,$60 par cumulative preferred stock outstanding and 32,000 shares of no-par common stock outstanding.Preferred dividends of $22,000 are in arrears.At the end of the current year,the corporation declares a dividend of $236,000.What is the dividend per share for preferred stock and for common stock? (Round your answer to the nearest cent. )
A)The dividend per share is $6.00 for preferred stock and $13.57 per share for common stock.
B)The dividend per share is $23.60 for preferred stock and $0 per share for common stock.
C)The dividend per share is $14.20 for preferred stock and $2.94 per share for common stock.
D)The dividend per share is $23.60 for preferred stock and $2.94 per share for common stock.
Q3) List the four basic rights of stockholders.
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Page 15
Chapter 14: The Statement of Cash Flows
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Q1) Which of the following describes the financing activities section of the statement of cash flows?
A)It includes increases and decreases in long-term assets.
B)It includes cash inflows and outflows related to long-term liabilities and equity.
C)It includes interest and dividend income and cash payments for interest expense.
D)It reports on activities that create revenue or expenses for the entity's business.
Q2) Which of the following sections of the statement of cash flows include activities that affect current assets and current liabilities on the balance sheet? (Assume the indirect method is used. )
A)the investing activities section
B)the financing activities section
C)the operating activities section
D)the non-cash investing and financing section
Q3) The statement of cash flows is dated the same as the balance sheet.
A)True
B)False
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Chapter 15: Financial Statement Analysis
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Q1) In a vertical analysis of the balance sheet,the base amount is total liabilities.
A)True
B)False
Q2) Grand Office Supply reported the following gross profit percentages: 2017: 37.5%;2018: 36.2%;2019: 20.8%.The industry average is 35%.What are some possible reasons for the decline in 2019?
Q3) To accurately determine the financial performance of a company,it is necessary to compare the company's performance ________.
A)with a competing company
B)to the budget
C)with companies in different industries
D)only with profitable companies
Q4) An annual report provides information about a company's financial condition. A)True
B)False
Q5) Normally,companies with low gross profit percentages will have low asset turnover. A)True
B)False
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Chapter 16: Introduction to Managerial Accounting
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Sample Questions
Q1) Manufacturing costs flow from Work-in-Process Inventory to Cost of Goods Sold to Finished Goods Inventory.
A)True
B)False
Q2) Financial reporting is typically much more detailed than managerial accounting.
A)True
B)False
Q3) Which of the following would appear as a line item on the income statements of both a merchandiser and a manufacturer?
A)Direct Labor
B)Cost of Goods Manufactured
C)Direct Materials
D)Cost of Goods Sold
Q4) Value added activities which begin in research and development through product design and production are called ________.
A)downstream activities
B)design activities
C)upstream activities
D)sustainability activities
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Chapter 17: Job Order Costing
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Q1) The predetermined overhead allocation rate is calculated by dividing ________.
A)the total estimated overhead costs by total number of days in a year
B)the estimated amount of cost driver by actual total overhead costs
C)the actual overhead costs by actual amount of the cost driver or allocation base
D)the estimated overhead costs by total estimated quantity of the overhead allocation base
Q2) Oxford Manufacturing Company completed jobs that cost $48,000 to produce.In the same period, the company sold jobs for $102,000 that cost $53,000 to produce.Prepare the journal entries for the completion and sales of the jobs.All sales are on account.Omit explanation.Assume the perpetual inventory system is used.
Q3) Overallocated manufacturing overhead is adjusted by debiting the Cost of Goods Sold account.
A)True
B)False
Q4) Job order costing is well suited for the service industry.
A)True
B)False
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Chapter 18: Process Costing
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Q1) A production cost report shows only the calculations for the physical flow of products.
A)True
B)False
Q2) Under process costing,the total production costs incurred in each process must be split between the units that have been completed in that process and transferred to the next process and the ________.
A)Finished Goods Inventory if it is the first process
B)units not completed and remaining in Work-in-Process Inventory for that department
C)Cost of Goods Sold when the units are sold
D)Work-in-Process Inventory of the previous department when there are no sales
Q3) Production cost reports prepared using the first-in,first-out (FIFO)method assume that the first units started in the production process are the first units completed and transferred out.
A)True
B)False
Q4) List the four steps,in the order of occurrence,that are used in preparing a production cost report.
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Chapter 19: Cost Management Systems:
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Q1) In the first step in developing an activity-based costing system for a manufacturing company,the management team must determine the activities that incur the majority of the manufacturing overhead costs.
A)True
B)False
Q2) In target pricing,the target sales price is the ________.
A)total product cost incurred in producing a product
B)net profit desired by the company
C)amount customers are willing to pay for a product or service
D)price calculated by deducting the desired net profit from the total production cost
Q3) When preparing the report to analyze a proposed quality improvement program,which of the following costs are included in the total costs of undertaking the quality improvement program?
A)warranty costs
B)sales returns
C)inspection of raw materials
D)cost of rework
Q4) Define target cost.How is target cost determined?
Q5) What is the purpose of implementing a just-in-time inventory system?
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Chapter 20: Cost-Volume-Profit Analysis
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Q1) The Doughboys Pizza Company sells pizzas in two different sizes-medium and large.The two products sell in equal numbers.The contribution margin of a medium pizza is $16,and the contribution margin of a large pizza is $18.The weighted average contribution margin is $17.
A)True
B)False
Q2) Explain the meaning of the operating loss and operating income areas on a cost-volume-profit (CVP)graph.
Q3) Robusta Coffee Importers sold 7000 units in October at a sales price of $45 per unit.The variable cost is $20 per unit.The monthly fixed costs are $8000.What is the operating income earned in October?
A)$175,000
B)$315,000
C)$167,000
D)$140,000
Q4) Contribution margin is the amount that contributes to covering the fixed costs and then to providing operating income.
A)True
B)False
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Chapter 21: Variable Costing
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Q1) Which of the following statements is true of variable costing?
A)It considers variable manufacturing overhead as period costs.
B)It considers fixed manufacturing overhead as product costs.
C)It considers variable selling and administrative costs as product costs.
D)It considers fixed selling and administrative costs as period costs.
Q2) Absorption costing considers direct materials,direct labor,variable manufacturing overhead,and fixed manufacturing overhead as product costs.
A)True
B)False
Q3) Absorption costing is more appropriate than variable costing for making plant production capacity decisions in the long run.
A)True
B)False
Q4) For short-term pricing decisions,fixed costs are usually not relevant because they do not change.
A)True
B)False
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Chapter 22: Master Budgets
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Q1) A manufacturing company has prepared the operating budget and the cash budget and is now preparing the budgeted balance sheet.While doing so,the Cash balance can be taken from the ________.
A)operational budget
B)budgeted income statement
C)cash budget
D)sales budget
Q2) The forecast of sales revenue is the cornerstone of the master budget.
A)True
B)False
Q3) Budgets provide a benchmark that motivates employees and helps managers evaluate performance.
A)True
B)False
Q4) The production budget is the first component of the operating budget.
A)True
B)False
Q5) What is the cornerstone of the master budget for a merchandising company? Why?
Q6) For a merchandising company,what is the final step in the master budget process?
Q7) List the four budgeting objectives.Why is this process a loop?
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) Accurate Tax Returns budgets two direct labor hours for every tax return that it prepares,at a standard cost of $32 an hour.During the most recent year,540 returns were completed with the labor cost totaling $24,000.The actual labor cost was $44.44 per hour during that period.The actual number of labor hours was 1000.What is the direct labor cost variance?
A)$6720 F
B)$32,000 U
C)$12,440 U
D)$32,000 F
Q2) The fixed overhead cost variance measures how well the business ________.
A)keeps costs of variable overhead inputs within standard.
B)uses its variable overhead inputs.
C)keeps fixed overhead within standard.
D)explains why fixed overhead is under allocated or overallocated
Q3) The flexible budget variance is the difference between expected results in the flexible budget for the actual units sold and the static budget.
A)True
B)False
Q4) What does the fixed overhead cost variance measure?
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Chapter 24: Responsibility Accounting and Performance Evaluation
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Q1) Which of the following is an expanded form of calculating return on investment?
A)Profit margin ratio × Asset turnover ratio
B)Net profit ratio × Inventory turnover ratio
C)Gross profit ratio × EVA
D)Asset turnover ratio × Inventory turnover ratio
Q2) The return on investment of a company can be improved by either increasing average total assets or decreasing operating income.
A)True B)False
Q3) The limitations of financial performance measures ________.
A)lead management to use accelerated depreciation methods
B)make it easy for companies to create goal congruence
C)lead management to use the net book value of assets
D)can be overcome by taking a broader view of performance with a balanced scorecard
Q4) In decentralized companies,performance evaluation systems provide upper management with the feedback it needs to maintain control over the entire organization.
A)True B)False
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Chapter 25: Short-Term Business Decisions
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Q1) All of the following are disadvantages of outsourcing a product except ________.
A)outsourcing allows the company to focus on its primary function.
B)the risk associated with having a third-party manufacturer produce substandard products.
C)the loss of control over the manufacturing process.
D)concerns about being unable to meet commitments to customers if a subcontractor experiences delays.
Q2) Differential analysis is a method that looks at how operating income would differ under each budget scenario.
A)True B)False
Q3) A company spent $750,000 to produce 225,000 gallons of a chemical free cleaning product that can be sold for $6.00 per gallon.This product can be further processed into a household cleaning solution that can be sold for $8.50 per gallon.It will cost $360,000 to process the chemical free product into the household cleaning solution. Prepare a differential analysis to determine if the product should be processed further.Discuss the results.
Q4) Define the terms "Relevant Cost" and "Sunk Cost."
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Chapter 26: Capital Investment Decisions
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Q1) The discounted cash flow methods of evaluating capital investments are superior because they consider both the time value of money and the profitability of the investment.
A)True
B)False
Q2) Sensitivity analysis is a technique that ________.
A)sets the budgets of alternative investment opportunities
B)analyzes the effect of an investment on workers' morale
C)evaluates the different available investment options
D)shows how results differ when underlying assumptions change
Q3) When using the accounting rate of return,what is the rule for making the decision to make the investment?
Q4) An investment should be accepted if ________.
A)it has positive total cash inflows
B)it has a payback period in less than 10 years
C)the investment's rate of return is lower than the company's current year required rate of return
D)the net present value is positive
Q5) If the net cash inflows are unequal,how is the payback period (in years)of an investment calculated?
28
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Chapter 27: Accounting Information Systems
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Q1) Hardware is electronic equipment that includes computers,monitors,printers,and the network that connects them.
A)True
B)False
Q2) Depreciation expense is recorded in a ________.
A)cash payments journal
B)sales journal
C)cash receipts journal
D)general journal
Q3) Cash purchases are recorded in the purchases journal.
A)True
B)False
Q4) Every transaction recorded in the cash receipts journal includes a ________.
A)credit to Cash
B)debit to Accounts Receivable
C)credit to Accounts Receivable
D)debit to Cash
Q5) In a networked system,the server stores the program and the data.
A)True
B)False
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