Accounting for Decision Making
Exam Answer Key
Course Introduction
Accounting for Decision Making is designed to introduce students to the fundamental concepts and techniques of accounting that are essential for effective managerial decision making. The course emphasizes the use of financial and managerial accounting information in planning, controlling, and evaluating business operations and strategies. Students will learn how to interpret and analyze accounting data, assess financial performance, and make informed decisions regarding resource allocation, cost management, and operational efficiency. Through real-world case studies and practical exercises, this course equips future managers and business professionals with the tools necessary to use accounting information as a critical component in the decision-making process.
Recommended Textbook
Horngren's Accounting 8th Australia Edition by Tracie Nobles
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Page 2
Chapter 1: The Role of Accounting in Decision Making
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Q1) Which of the following is TRUE for a proprietorship?
A) A proprietorship has a single owner.
B) A proprietorship joins two or more individuals as co-owners.
C) The proprietor is not personally liable for the debts of the proprietorship.
D) A proprietorship has an indefinite life.
Answer: A
Q2) The total of amount of assets that a business possesses may or may not equal the total of liabilities and equity of the business.
A)True
B)False
Answer: False
Q3) The proprietor of Martin Supply Service took a $5 000 cash withdrawal.What is the effect of the withdrawal on the accounts of the business?
A) Cash account increases; Accounts receivable decreases.
B) Cash account decreases; Owners' capital account decreases.
C) Accounts payable increases; Owners' capital account decreases.
D) Cash account increases; Owners' capital account decreases.
Answer: B
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3
Chapter 2: Recording Business Transactions
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Q1) Which of the following statements is TRUE?
A) A trial balance presents data in debit and credit format, but a balance sheet does not.
B) A trial balance is in the same format as a balance sheet.
C) A trial balance is created after the balance sheet is prepared.
D) A trial balance shows total amounts for assets, liabilities and equity.
Answer: A
Q2) A business pays $500 cash for supplies.Which account is credited?
A) Service revenue
B) Accounts payable
C) Cash
D) Supplies
Answer: C
Q3) Journalising a transaction means:
A) recording the transaction, including a brief explanation.
B) calculating the balance in an account.
C) copying the information from the journal to the ledger.
D) finding the account number in the chart of accounts.
Answer: A
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4
Chapter 3: The Adjusting Process
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Q1) If a company is using the cash-basis method of accounting,when is revenue recorded?
A) When cash is received, at a time after the services were rendered
B) When services are rendered, even though cash may be received at a later date
C) When cash is received, either prior to the services being rendered or at a time after the services were rendered
D) When cash is received, prior to the services being rendered
Answer: C
Q2) Healthy Living,a diet magazine,collected $1,440,000 in subscription revenue on 31 May.Healthy Living earns a minimum of $1,080,000 from the buyers who are not the subscribers.Each subscriber will receive an issue of the magazine for each of the next 12 months,beginning with the June issue.The company uses the accrual method of accounting.By the end of December,what is the amount of Subscription revenue that has been earned?
A) $1,080,000
B) $840,000
C) $600,000
D) $1,440,000
Answer: B
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Page 5
Chapter 4: Completing the Accounting Cycle
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Q1) The adjusting entry for depreciation would include a:
A) debit to Accumulated depreciation and a credit to the asset.
B) debit to Depreciation expense and a credit to Accumulated depreciation.
C) debit to Accumulated depreciation and a credit to Depreciation expense.
D) debit to Depreciation expense and a credit to Cash.
Q2) The smaller the current ratio,the higher is the ability of a firm to repay its current debts.
A)True
B)False
Q3) Which of the following does NOT appear on the worksheet?
A) Adjusting entries
B) Closing entries
C) Adjusted balances
D) Profit
Q4) Which of the following does the debt ratio measure?
A) The proportion of the company's assets that are financed with equity
B) The company's ability to invest in growth
C) The company's overall ability to pay its liabilities
D) The company's ability to pay current liabilities with current assets
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Chapter 5: Retailing Operations
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Q1) Which of the following is subtracted from Net sales revenue to arrive at Gross profit?
A) Cost of sales
B) Sales discounts and Sales returns and allowances
C) Operating expenses
D) Cost of goods available for sale
Q2) Which of the following is GENERALLY the major cost of inventory?
A) Salary expense
B) Advertising
C) Buildings
D) Cost of sales
Q3) FOB Destination means that the:
A) seller normally pays the transportation costs.
B) transportation costs are billed to the buyer.
C) buyer normally pays the transportation costs.
D) buyer and the seller split the transportation costs.
Q4) GST is a flat percentage charge levied on the supply of goods and services.
A)True
B)False
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Chapter 6: Retail Inventory
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Sample Questions
Q1) Ending inventory for the current year is overstated by $20 000.What effect will this error have on the following year's Net profit?
A) Net profit will be understated by $40 000.
B) The inventory overstatement will not affect Net profit.
C) Net profit will be understated by $20 000.
D) Net profit will be overstated by $20 000.
Q2) A company purchased 100 units for $30 each on 31 January.It purchased 130 units for $39 each on 28 February.It sold a total of 160 units for $45 each from 1 March to 31 December.What is the amount of ending inventory on 31 December if the company uses the first-in,first-out (FIFO)inventory costing method? (Assume that the company uses a perpetual inventory system.)
A) $2730
B) $960
C) $2100
D) $5250
Q3) Using the FIFO costing method will always produce the same results whether a company uses perpetual or periodic inventory.
A)True
B)False
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Page 8
Chapter 7: Accounting Information Systems
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Sample Questions
Q1) All of the following are common examples of special journals,except:
A) cash receipts journal.
B) sales journal.
C) purchases journal.
D) accounts payable journal.
Q2) Each cell in a spreadsheet is defined by:
A) formulas and labels.
B) a row number and a label.
C) a row number and a column letter.
D) a formula and a column number.
Q3) Which special journal could contain a column for sales discount?
A) purchases journal
B) sales journal
C) cash receipts journal
D) cash payments journal
Q4) Hardware is the electronic equipment that includes:
A) computers, monitors, printers and networks.
B) monitors, printers, software and databases.
C) monitors, printers, software and networks.
D) computers, monitors and software.
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Chapter 8: Internal Control and Cash
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Sample Questions
Q1) Which of the following describes the internal control procedure separation of duties?
A) External auditors will monitor internal controls.
B) Cashiers must not have access to accounting records.
C) The information system is critical.
D) Prenumber invoices and other documents.
Q2) In the following situation,which internal control procedure needs strengthening? At Hofstra Services,the accounting clerk fills out unnumbered purchase order forms for purchases of supplies.An operations engineer completes the form with a detailed description of the supplies being ordered,and the operations manager approves the purchase and passes the purchase order back to the accountant for processing.
A) Separation of duties
B) Competent, reliable and ethical personnel
C) Documents and records
D) Assignment of responsibilities
Q3) Cash is the most liquid of all company assets.
A)True
B)False
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Chapter 9: Receivables
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Q1) The two major types of receivables are accounts receivable and bills receivable.
A)True
B)False
Q2) Barker Sales has a days' sales in receivables figure of 40 and Xanadu Company has a days' sales in receivables of 32.This would suggest that Xanadu is having greater difficulty collecting its accounts receivable than Barker.
A)True
B)False
Q3) A company issues a 100-day,14% bill for $17,000.What is the principal amount of the bill?
A) $16,339
B) $17,000
C) $17,661
D) $19,380
Q4) Which of the following is NOT a cost of selling on credit?
A) Opportunity cost of not having the cash immediately
B) Bad debt expense
C) Increased advertising
D) Collection costs
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Chapter 10: Non-Current Assets: Property, plant and Equipment, and Intangibles
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Q1) The type of intangible asset related to the rights of original music and media is:
A) a patent.
B) a copyright.
C) goodwill.
D) a trademark.
Q2) Nobells Ltd purchased a property that included both land and a building for $570,000.The company hired an appraiser who has determined that the market value of the land is $380,000 and that of the building is $430,000.At what amount should the company record the cost of land?
A) $158,421
B) $66,667
C) $267,407
D) $285,000
Q3) Normal expenditures for repairs and maintenance should be capitalised. A)True B)False
Q4) When an asset is fully depreciated,no further depreciation expense is recorded. A)True
B)False
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Chapter 11: Current Liabilities and Payroll
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Q1) General Stores borrowed $50 000 at 6% interest on a long-term loan payable on 31 August.At 31 December,interest plus $10 000 of the principal are payable within one year.What is the account name and amount of a current liability that will be reported on the balance sheet as at 31 December?
A) Interest payable $600
B) Interest payable $1 000
C) Interest payable $3 000
D) Interest payable $2 000
Q2) Which of the following are deducted to arrive at an employee's net pay?
A) Income taxes
B) Commissions
C) Bonuses
D) Payroll tax
Q3) Estimated warranty payable would be included in the operating expense section of the income statement.
A)True
B)False
Q4) Payroll taxes are withheld from each employee's pay cheque.
A)True
B)False
Page 13
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Chapter 12: Non-Current Liabilities,debentures Payable and
Classification of Liabilities on the Balance Sheet
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Q1) Blanding Company issues $1,020,000 of 8%,10-year debentures at 94 on 28 February 2017.The debentures pay interest on 28 February and 31 August.On 31 August 2017,how much cash did Blanding pay out to investors? (Round to the nearest dollar.)
A) $40,800
B) $39,780
C) $41,820
D) $81,600
Q2) The interest rate on which cash payments to debenture holders are based is the: A) amortisation rate.
B) market rate.
C) discount rate.
D) stated rate.
Q3) Discount on debentures payable is considered to be additional interest expense of the company that issues the debenture.
A)True
B)False
Q4) Instalment payments for mortgages are normally paid once per year.
A)True
B)False
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Chapter 13: Partnerships
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Q1) When one partner leaves the partnership for any reason,the old partnership ceases to exist.
A)True
B)False
Q2) In most respects,a balance sheet for a partnership is similar to a balance sheet for a proprietorship EXCEPT for the fact that the equity section shows a capital account for each partner.
A)True
B)False
Q3) Felix and Ian allocate 2/5 of the profits and losses to Felix and 3/5 to Ian.The net profit of the firm is $40,000.The journal entry to close the Income summary will include:
A) credit to Income summary for $40,000.
B) debit to Felix, capital for $16,000.
C) credit to Ian, capital for $24,000.
D) debit to Felix, capital for $24,000.
Q4) Partnerships always share profit equally among all partners.
A)True
B)False
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15
Chapter 14: Companies: Formation and Shareholders
Equity
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Q1) Dallkin Company issued 10,000 ordinary shares on 1 January 2016.The shares were sold at $25 per share.The journal entry for this transaction would include a:
A) debit to Cash for $250,000and a credit to Retained earnings for $250,000
B) credit to Cash for $250,000 and a debit to Ordinary share capital for $250,000
C) credit to Cash for $250,000, a debit to Retained earnings for $10,000 and a debit to Ordinary share capital for $240,000
D) debit to Cash for $250,000 and a credit to Ordinary share capital for $250,000
Q2) Osbourne Ltd issued 90,000 ordinary shares in exchange for manufacturing equipment.The equipment was valued at $1,350,000.The shares have a market value of $0.01 per share.Which of the following is included in the journal entry to record this transaction?
A) credit Gain on sale of ordinary shares $1,440,000
B) debit Cash $1,080,000
C) credit Ordinary share capital $90,000
D) credit Ordinary share capital $1,350,000
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Page 16
Chapter 15: Companies: Capital Management and the Income Statement
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Q1) Which of the following does NOT require a formal journal entry?
A) Share dividend
B) Share split
C) Issue of new shares
D) Cash dividend
Q2) Which of the following would be included in the entry to record a 2-for-1 share split?
A) Retained earnings would be debited.
B) Ordinary share capital would be credited.
C) Retained earnings would be credited.
D) There is no journal entry to record a share split.
Q3) The account to be debited when a share dividend is declared and distributed on the same date would be:
A) Dividends.
B) Cash.
C) Retained earnings.
D) Ordinary share capital.
Q4) A share buy-back requires a credit to the Ordinary share capital account.
A)True
B)False
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Chapter 16: The Cash Flow Statement
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Q1) For anything to be considered a cash equivalent,the asset must be:
A) convertible to cash within six months or less.
B) convertible to cash within one year.
C) convertible to cash within five years.
D) convertible to cash at will.
Q2) Interest expense incurred on a bill payable would be included in the financing section of the cash flow statement.
A)True
B)False
Q3) 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
Q4) Free cash flow is the same thing as cash flow from operating activities.
A)True
B)False
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Chapter 17: The Framework of Accounting
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Q1) The objective of financial reporting is to provide useful information to investors,creditors and others to aid in making and evaluating decisions about the allocation of scarce resources.
A)True
B)False
Q2) SAC 2 is titled:
A) Objective of General Purpose Financial Reporting.
B) Qualitative Characteristics of Financial Information.
C) Definition and Recognition of the Elements of Financial Statements.
D) Definition of the Reporting Entity.
Q3) Management relies much more on special purpose reports rather than the general-purpose information needed by external users.
A)True
B)False
Q4) A conceptual framework of accounting is intended to eliminate the need for detailed accounting standards.
A)True
B)False
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Chapter 18: Financial Statement Analysis
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Q1) A Company has 6000 ordinary shares outstanding.The preference shareholders received a $16,500 dividend. The net profit for the year is $290,000.Calculate earnings per share.
A) $48.33
B) $45.58
C) $55.00
D) $96.67
Q2) The price/earnings ratio indicates the:
A) market price of $1 of earnings.
B) ease of selling inventory.
C) dividend yield of the company.
D) percentage of ordinary shares financed by debt.
Q3) If an analyst wishes to see how gross profit of a company has changed from one year to the next,vertical analysis would be the best approach.
A)True
B)False
Q4) Vertical analysis is used with the income statement,but not with the balance sheet.
A)True
B)False
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Chapter 19: Introduction to Managerial Accounting and the Master Budget
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Q1) Repair and maintenance costs of vehicles used to deliver products to the customers are inventoriable product costs.
A)True
B)False
Q2) Which of the following costs do NOT go directly into the work in process account?
A) Factory cleaning costs
B) The purchase of raw materials
C) Factory overhead
D) Indirect labour
Q3) In order to prepare a budgeted income statement,several other budgets need to be prepared first.Which of the following is NOT one of the budgets needed to prepare the budgeted income statement?
A) Sales
B) Electricity and gas
C) Capital expenditures
D) Inventory, purchases and cost of sales
Q4) Advertising and marketing costs are included in manufacturing overhead.
A)True
B)False
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Chapter 20: Job Costing
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Q1) When jobs are completed,the total cost of the job is recorded as a debit to Finished goods and a credit to Work in process.
A)True
B)False
Q2) On 30 June,Coraline Company finished job number 750,with total job costs of $4 600,and transferred the costs to Finished goods.On 6 July,they completed the sale of the goods to a customer for $5 100 cash.In order to record the sale,two entries are necessary,one to record revenue,and one to record cost of sales.Which of the following is the correct entry needed to record the cost of sales?
A) Debit Finished goods inventory $4 600, credit Cost of sales $4 600
B) Debit Work in process inventory $4 600, credit Cost of sales $4 600
C) Debit Cost of sales $4 600, credit Finished goods inventory $4 600
D) Debit Cost of sales $4 600, credit Work in process inventory $4 600
Q3) Companies that use activity-based costing do NOT need to trace direct materials and direct labour to products as is done in traditional costing systems.
A)True
B)False
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Page 22
Chapter 21: Cost-Volume-Profit Analysis
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Q1) Anthony Company has fixed costs of $32,000 per month.Highest production volume during the year was in January when 140,000 units were produced,85,000 units were sold and total costs of $640,000 were incurred.In June,the company produced only 55,000 units.What was the total cost incurred in June?
A) $640,000
B) $414,118
C) $400,900
D) $270,700
Q2) Young Company has provided the following information: \[\begin{array} { | l | l | }
\hline \text { Price per unit } & \$ 60 \\
\hline \text { Variable cost per unit } & 12 \\
\hline \text { Fixed costs per month } & \$ 20,000 \\
\hline \end{array}\]
What is the amount of sales in dollars required for Young to break even?
A) $4000
B) $20,000
C) $100,000
D) $25,000
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Page 23
Chapter 22: Short-Term Business Decisions
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Q1) A company has two different products that are sold in different markets.Financial data are as follows:
\[\begin{array} { | l | l | l | l | }
\hline & \text { Product A } & \text { Product B } & \text { Total } \\
\hline \text { Revenue } & \$ 18,000 & \$ 9500 & \$ 27,500 \\
\hline \text { Variable cost } & ( 9000 ) & ( 9700 ) & ( 18,700 ) \\
\hline \text { Fixed cost (allocated) } & \$ 2000 ) & \$ 2000 ) & ( 4000 ) \\
\hline \text { Operating profit } & \$ 7000 & ( \$ 2200 ) & \$ 4800 \\
\hline
\end{array}\]
Assume that fixed costs are all unavoidable and that dropping one product would not impact sales of the other.If Product B is dropped,what would be the impact on total operating profit of the company?
A) decrease $2000
B) increase $2000
C) decrease $200
D) increase $200
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Chapter 23: Capital Investment Decisions and the Time
Value of Money
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Q1) The following details are provided by Dopler Company: \(\begin{array}{|l|c|c|c|c|}
\hline & \text { Project A } & \text { Project B } & \text { Project C } & \text { Project D } \\
\hline \text { Initial investment } & \$ 430,000 & \$ 204,000 & \$ 566,000 & \$ 500,000 \\
\hline \text { PV of cash inflows } & \$ 578,000 & \$ 380,000 & \$ 802,000 & \$ 396,000 \\
\hline \text { Payback period (years) } & 3,6 & 3.2 & 4.0 & 2.0 \\
\hline \text { NPV of project } & \$ 148,000 & \$ 176,000 & \$ 236,000 & 104,000 \\ \hline \end{array}\)
What is the profitability index for Project B?
A) 1.96
B) 1.25
C) 1.86
D) 1.37
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