Managerial and Financial Accounting
Textbook Exam Questions
Course Introduction
Managerial and Financial Accounting provides an in-depth introduction to the principles and practices of both managerial and financial accounting. The course covers the preparation, analysis, and interpretation of financial statements, giving students a strong understanding of how businesses record, report, and utilize financial information for external stakeholders. Students also examine key managerial accounting concepts such as budgeting, cost analysis, and performance evaluation, learning how accounting information is used internally to support planning, decision-making, and control within organizations. Emphasis is placed on real-world applications, ethical considerations, and the role of accounting in strategic management.
Recommended Textbook
Financial Accounting An Introduction to Concepts Methods and Uses 14th Edition by Roman L. Weil
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Chapter 1: Introduction to Business Activities and Overview
of Financial Statements and the Reporting Process
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Sample Questions
Q1) Compute the missing amounts affecting the net income for Year 1 in each of the five independent cases that follow.Amounts shown are in thousands.
\(\begin{array}{llllll}&\text { CASE A }& \text { CASE B }& \text { CASE C }& \text { CASE D }& \text { CASE E}\\
\text { Sales revenue } & \$ 650 & \text { B } & \$ 400 & \$ 800 & \$ 390 \\
\text { Cost of goods sold } & 300 & \$ 110 & \text { C } & 400 & 200 \\
\text { Selling and } & 150 & 150 & 120 & 65 & \text { E } \\
\text { administrative expenses } & & & & &\\
\text { Income tax expense } & 56 & 30 & 55 & \text { D } & 0 \\
\text { Net income } & \text { A } & 10 & 75 & 235 & (15)\\
\end{array}\)
Answer: a.$144
b.$300
c.$150
d.$100
e.$205
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Chapter 2: The Basics of Record Keeping and Financial
Statement Preparation: Balance Sheet
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Sample Questions
Q1) Under IFRS, assets and liabilities in the statement of financial position appear in order of
A)decreasing closeness-to-cash.
B)increasing closeness-to-cash.
C)alphabetical order.
D)numerical order.
E)all of the above.
Answer: B
Q2) A T-account is a device or convention for organizing and accumulating the accounting entries of transactions that affect an individual account, such as cash, accounts receivable, bonds payable, or additional paid-in capital.
A)True
B)False
Answer: True
Q3) Total liabilities plus shareholders' equity shows the sources of all the firm's financing, and the assets show how the firm holds or has invested those funds.
A)True
B)False
Answer: True
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Chapter 3: The Basics of Record Keeping and Financial
Statement Preparation: Income Statement
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Q1) Once revenue and expense accounts serve their purpose of accumulating specific revenue and expense items for an accounting period, they have no further purpose for that period.
A)True
B)False
Answer: True
Q2) Most firms display the components of cost of sales.
A)True
B)False
Answer: False
Q3) The accounting system uses a device called an account.An account
A)is created each time a transaction takes place.
B)accumulates the increases and decreases that occur during the period for a single item.
C)is created only for income statement items.
D)is created only for balance sheet items.
E)None of these answer choices is correct.
Answer: B
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Chapter 4: Balance Sheet: Presenting and Analyzing
Resources and Financing
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Q1) A balance sheet prepared according to U.S.GAAP lists liabilities starting with those that the firm will discharge soonest (the most current or closest to maturity liabilities) and ending with those that it will pay latest (the most noncurrent or distant to maturity liabilities).
A)True
B)False
Q2) The stockholders' equity of a firm can be defined as
A)net current assets
B)a residual interest
C)total assets plus total liabilities
D)the owners' claim to the assets and liabilities
E)None of these answer choices is correct.
Q3) A liability arises when a firm
A)signs a new labor union contract which includes a 6% pay raise for its union employees.
B)issues a purchase order for 100,000 units of inventory from a supplier over the next two years.
C)receives inventory previously ordered.
D)Both answers b and c are correct.
E)None of these answer choices is correct.
Page 6
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Chapter 5: Income Statement: Reporting Results of Operating Activities
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Q1) Which of the following is/are not a period expense?
A)administrative expenditures
B)expenditures on advertising
C)rent on a warehouse for the current month
D)cost of goods sold
E)all of the above are period expenses
Q2) How are expenses recognized and measured?
Q3) Describe items appearing in accumulated other comprehensive income. What is comprehensive income and what does the shareholders' equity section of the balance sheet report?
Q4) What is revenue recognition?
Q5) Under accrual accounting, revenues are recognized when
A)the firm has performed all, or most of, the services it expects to provide.
B)the firm has received cash, or some other asset such as a receivable, whose cash-equivalent value it can measure with reasonable precision.
C)the firm has significant uncertainty about the amount and timing of the cash inflows and outflows from the sales transaction.
D)both a and b must be present.
E)none of the above.
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Chapter 6: Statement of Cash Flows
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Q1) Which method of preparing the statement of cash flows is required by U.S.GAAP?
A)direct
B)indirect
C)funds flow
D)either direct or indirect may be used if appropriate note disclosure is included
E)either direct or funds flow may be used if appropriate note disclosure is included
Q2) Many countries around the world require a
A)statement of cash flows.
B)cash reconciliation statement.
C)statement of funds flow.
D)statement of cash created.
E)statement of cash receipts and disbursements.
Q3) The inflows and outflows of cash during the year appear in the statement of cash flows in one of three categories: operating, investing, and financing.Explain each category.
Q4) How does the statement of cash flows explain the reasons for the change in cash between balance sheet dates?
Q5) Describe the various presentation formats for the Statement of Cash Flows.
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Chapter 7: Introduction to Financial Statement Analysis
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Q1) A quick ratio approximately one-half of the current ratio is typical, although this varies by industry.
A)True
B)False
Q2) Which of the following could affect(s) the fixed asset turnover ratio?
A)Firms often invest in fixed assets several periods before these assets generate sales from products manufactured in their plants or sold in their stores.
B)A low or decreasing rate of fixed asset turnover may indicate expanding firms preparing for future growth.
C)Firms anticipating a decline in product sales could cut back expenditures on fixed assets and increase the fixed asset turnover ratio.
D)All of the above.
E)None of the above.
Q3) In theory, the numerator of the accounts receivable turnover ratio should include only sales made on account if the objective is to measure how quickly a firm collects its accounts receivable.
A)True
B)False
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Chapter 8: Revenue Recognition, Receivables, and Advances
From Customers
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Q1) List three ways a firm may convert accounts receivable into cash and briefly describe the features of each option.
Q2) Under the accrual method, the timing of revenue recognition is influenced by when the services or product are provided.
A)True
B)False
Q3) The percentage-of-completion method provides information about the seller's performance during the contract period; in contrast, the completed contract method reports all profit only when seller completes the contract.
A)True
B)False
Q4) The financial statements contain information for analyzing the collectibility of accounts receivable and the adequacy of the expense for uncollectible accounts.Typical ratios used for this analysis include the accounts receivable turnover ratio, days receivables outstanding, and write-off percentage.
A)True
B)False
Q5) Discuss the application of the allowance method for sales returns.
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Chapter 9: Working Capital
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Sample
Questions
Q1) City Bicycle City Bicycle , a cycling store has a beginning inventory of one bi-level touring bicycle 1, for which it paid $2,500.Suppose that during the period the store purchases bi-level touring bicycle 2 for $2,900 and bi-level touring bicycle 3 for $3,000, and that it sells one bicycle for $5,500.The three bicycles are physically identical; the store acquired them at different times as their acquisition costs changed, so only their costs differ.
Using the City Bicycle example, suppose the cycling store uses the specific identification system, and uses serial numbers or product bar codes to identify bi-level touring bicycle 2 as the unit sold.The cost of goods sold is _____, and the ending inventory is _____.
A)$2,900; $5,500
B)$2,500; $5,900
C)$3,000; $5,400
D)$2,800; $5,600
E)cannot be determined with the information given
Q2) How do Merchandising and Manufacturing firms report product costs and changes in Inventory?
Q3) How are inventories valued subsequent to acquisition?
Q4) Describe cash and cash equivalents.
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Chapter 10: Long-Lived Tangible and Intangible Assets
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Q1) U.S.GAAP and IFRS distinguish three categories of long-lived assets for purposes of measuring and recognizing impairment losses.
A)True
B)False
Q2) Why is analysis of intangible assets more challenging than the analysis of tangible long-lived assets?
A)Except for software development costs under U.S.GAAP and development costs under IFRS, firms generally do not recognize internally developed intangibles as assets on the balance sheet.
B)U.S.GAAP and IFRS require firms to measure the fair values of identifiable intangibles acquired in a business combination and assess whether they have finite lives or indefinite lives.
C)Differences between U.S.GAAP and IFRS in the treatment of development costs mean that comparisons of firms that apply U.S.GAAP with firms that apply IFRS require consideration of and adjustment for those differences.
D)all of the above
E)none of the above
Q3) How are periodic depreciation and amortization accounted for?
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Chapter 11: Notes, Bonds, and Leases
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Sample Questions
Q1) First Communications Group is a communication services firm whose employees provide advertising, market research, public relations, and other services world-wide.Other than relatively small amounts of equipment, it owns virtually no property, plant, and equipment (it leases most of its office space).Which of the following is/are true?
A)First Communications Group has a low fixed asset intensity.
B)First Communications Group has a low debt-equity ratio.
C)First Communications Group creates value from employees' services, not from operating assets, so there is neither the need nor the ability to borrow long-term using property, plant, and equipment as collateral.
D)all of the above are true
E)none of the above
Q2) U.S.GAAP requires that all long-term monetary liabilities appear on the balance sheet at the
A)future value of the present cash payments.
B)total value of the future cash payments.
C)imputed value of the future cash payments.
D)present value of the future cash payments.
E)historical cash proceeds from debt issuance.
Q3) Discuss the fair value option in accounting for certain assets and liabilities.
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Chapter 12: Liabilities: Off-Balance Sheet Financing, Retirement
Benefits, and Income Taxes
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Q1) Robo Corporation entered into noncancelable, long-term material contracts with suppliers for the purchase of raw materials beginning in the calendar Year 4.These contracts amounted to $500,000 at December 31, Year 4, relating to raw materials with a market price of $575,000.This amount was considered material for Robo. (CMA adapted, Dec 95 #16) Refer to the Robo Corporation example.Robo Corporation's financial statements at December 31, Year 4,
A)include a contingent liability of $500,000.
B)disclose the purchase commitment.
C)include a liability of $575,000.
D)do not mention this commitment.
E)none of the above.
Q2) Notes to the financial statements provide additional information about income tax expense and deferred tax assets and deferred tax liabilities.Firms report which of the following?
A)components of income before income taxes
B)components of income tax expense
C)reconciliation from statutory to effective tax rate
D)components of deferred tax assets and liabilities
E)all of the above
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Chapter 13: Marketable Securities and Derivatives
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Q1) For financial reporting purposes, acquisition and disposition of trading securities are usually _____ activities.
A)nonoperating
B)financing
C)investing
D)operating
E)exchange
Q2) Describe the accounting for derivatives.
Q3) U.S.GAAP requires firms holding debt and equity securities as securities available-for-sale to treat unrealized holding gains or losses each period as
A)an increase or decrease in Accumulated Other Comprehensive Income (a separate shareholder equity account).
B)as an increase or decrease in reported Net Income for the period.
C)as an increase or decrease in reported Retained Earnings for the period.
D)a separate footnote disclosure to the financial statements.
E)none of the above
Q4) How are hedging gains and losses treated?
Q5) How are securities measured at acquisition?
Q6) How does U.S.GAAP and IFRS require firms to classify marketable securities?
Page 15
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Chapter 14: Intercorporate Investments in Common Stock
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Q1) The Canada Corporation has been using the equity method for its 100-percent owned subsidiary, Trenton Company, which has both assets and liabilities on its balance sheet and both revenues and expenses on its income statement.Trenton has positive cash flow from operations.Canada now consolidates the accounts of the Trenton Company, which it has owned 100 percent since organizing it.Trenton has no investments of its own and regularly declares dividends greater than zero, but less than net income.
Required:
Answer the following questions with one of these: larger, smaller, unchanged, or insufficient (information given to answer question).
a. What would be the effect on net income of Canada Corporation?
b. What would be the effect on revenues, including investment income, of Canada Corporation?
c. What would be the effect on investments of Canada Corporation?
d. What would be the effect on assets of Canada Corporation?
e. What would be the effect on liabilities of Canada Corporation?
f. What would be the effect on the debt/equity ratio (= Liabilities/Total Equities)?
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Chapter 15: Shareholders Equity: Capital Contributions and Distributions
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Q1) Which of the following is/are true regarding stock rights?
A)U.S.GAAP does not require recognition of the rights on the date of the grant.
B)Firms often issue stock rights to raise new capital from current shareholders.
C)Shareholders may exercise the stock rights or sell them to others.
D)IFRS does not require recognition of the rights on the date of the grant.
E)all of the above
Q2) Prepare the journal entries necessary to record the following transactions for the Falcon Company:
a. On January 1, Year 1, the company issued 10,000 shares of common stock (par value $5) at $15 per share.
b. On January 1, Year 2, the company issued $200,000 of convertible bonds at par. The bonds have a face value of $1,000, pay 8% annually and are convertible into 40 shares of common shares. Without the conversion feature, the bonds would have been issued at 98.
c. On June 1, Year 2, the company repurchased 8,000 of the common shares when the market price per share was $25.
d. On January 1, Year 3, the convertible bonds were exchanged for treasury shares. The market price of common stock on that date is $30. (Hint: recognize a gain or loss on conversion.)
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Chapter 16: Statement of Cash Flows: Another Look
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Q1) The extent to which a firm adjusts net income for changes in noncurrent assets and noncurrent liabilities in deriving cash flow from operations depends on the nature of its operations. _____ usually show an addback for deferred tax expense, whereas firms that _____ show a subtraction.
A)Rapidly growing firms; have operating losses
B)Firms that have operating losses; are profitable
C)Profitable firms; have operating losses
D)Firms that stop growing or that shrink; rapidly growing firms
E)Rapidly growing firms; stop growing or that shrink
Q2) Cash flow from ____ activities includes purchases and sales of marketable securities, investments in securities, property, plant, and equipment, and intangibles.
A)operating
B)investing
C)financing
D)purchasing
E)exchanging
Q3) Firms typically report cash flows from operations using the direct method.
A)True
B)False
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Chapter 17: Synthesis and Extensions
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Q1) Which of the following is/are not true?
A)An employer must recognize changes in the funded status of a defined benefit retirement plan on its balance sheet each period.
B)U.S.GAAP and IFRS do not require the employer to recognize changes in the funded status of a defined benefit retirement plan immediately in net income.
C)Changes in the net funded status of a defined benefit retirement plan because investment performance differs from expectations, or because of changes in actuarial assumptions, or in the retirement benefit formula, initially affect other comprehensive income.
D)Firms amortize the amounts in the contingency reserve for underfunded/overfunded retirement plans over the expected period of benefit as an adjustment to retirement plan cost.
E)all of the above
Q2) An entity should derecognize (remove from the balance sheet) an asset that it no longer controls.
A)True
B)False
Q3) How do firms account for intangibles other than goodwill?
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