Accounting for Decision Making Exam
Materials
Course Introduction
Accounting for Decision Making explores the role of accounting information in the managerial decision-making process. The course covers the preparation, analysis, and interpretation of financial and managerial accounting data, emphasizing its application to planning, controlling, and evaluating business activities. Topics include cost behavior, budgeting, performance measurement, pricing decisions, and capital investment evaluations. Through case studies and real-world examples, students develop the skills necessary to use accounting information effectively as a tool for making strategic and operational business decisions.
Recommended Textbook
Financial Reporting
Financial Statement Analysis and Valuation 9th Edition James M. Wahlen
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14 Chapters
1070 Verified Questions
1070 Flashcards
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Page 2
Chapter 1: Overview of Financial Reporting, Financial
Statement Analysis, and Valuation
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101 Flashcards
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Sample Questions
Q1) The following steps make up the steps in financial statement :
1.Identify the strategies the firm pursues to gain and sustain a competitive advantage.
2.Analyze the current profitability and risk of the firm using information in the financial statements.
3.Value the firm.
4.Identify the economic characteristics and competitive dynamics of the industry in Which a particular firm participates.
5.Assess the quality of the firm's financial statements and,if necessary,adjust them for Such desirable characteristics as sustainability or comparability.
6.Prepare forecasted financial statements.
Which of the following is the proper order for these interrelated sequential steps?
A) 4,1,5,2,6,3
B) 1,2,3,4,5,6
C) 4,6,2,5,1,3
D) 1,4,2,5,3,6
Answer: A
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Chapter 2: Asset and Liability Valuation and Income
Recognition
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79 Flashcards
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Sample Questions
Q1) Permanent tax differences are revenues and expenses:
A) that firms include in income tax returns, but do not appear in the income statement.
B) that are included in both the tax return and income statement, but in different accounting periods.
C) that firms include in the income statement, but do not appear in income tax returns.
D) that are not included in either the tax return or the income statement.
Answer: C
Q2) Disregarding cash flows with owners,over sufficiently long periods of time,net income equals:
A) revenues minus dividends and expenses
B) assets minus liabilities
C) stockholders' equity
D) cash inflows minus cash outflows
Answer: D
Q3) Revenues and expenses that firms include in both net income to shareholders and in taxable income,but in different periods are referred to as
Answer: temporary differences
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Chapter 3: Income Flows versus Cash Flows: Understanding
the Statement of Cash Flows
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84 Flashcards
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Sample Questions
Q1) When preparing the statement of cash flows using the indirect method,an increase in accounts payable would appear as:
A) a decrease in the operating activities section
B) an increase in the operating activities section
C) a use of cash in the investing activities section
D) a source of cash in the investing activities section
Answer: B
Q2) Free cash flows to all debt and common equity shareholders represents the excess of cash flows from:
A) operating activities over cash flows for financing activities
B) investing over cash flows for operating activities
C) investing over cash flows for financing activities
D) operating activities over cash flows for investing activities
Answer: D
Q3) The expense incurred by issuing stock options should be:
A) classified as a financing activity.
B) added back to net income in the operating activities section.
C) subtracted from net income in the operating activities section.
D) does not appear in the statement of cash flows.
Answer: B
Page 5
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Chapter 4: Profitability Analysis
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Sample Questions
Q1) Return on assets can be disaggregated into asset turnover and ____________________________________________________________.
Q2) Accounts receivable turnover is calculated by dividing ________________________________________ by average net accounts receivable.
Q3) One problem with using EPS as a measure of profitability is that it does not consider the amount of ____________________ or ____________________ required to generate a particular level of earnings.
Q4) Firms and industries characterized by heavy fixed capacity costs and lengthy periods required to add new capacity operate under a(n)___________________________________.
Q5) Refer to the information for Orca Industries.The profit margin for computing ROA for Orca Industries is:
A) 9.4%
B) 13.5%
C) 4.8%
D) 12.3%
Q6) Firms with high operating leverage have a higher proportion of _________________________ in their cost structure.
Page 6
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Chapter 5: Risk Analysis
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Sample Questions
Q1) The source of risk related to management competence,strategic direction and lawsuits is _________________________.
Q2) When the excess of ROA over the after-tax cost of borrowing declines,additional ________________________________________ begins to reduce the return to common shareholders.
Q3) Changes in interest rates can typically affect firms in all of the following ways except:
A) The value of investments in bonds or other investment securities with fixed interest Rates.
B) The value of liabilities with fixed interest rates.
C) The returns a firm generates from pension fund investments.
D) The cash-equivalent value of assets invested abroad.
Q4) Refer to the information for Mobile Company.Mobile's 2010 Inventory Turnover ratio is: A) 7.46
B) 11.83
C) 6.16
D) 5.62
Q5) The current ratio is one of the measures of the __________ of the firm.
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7
Chapter 6: Accounting Quality
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Sample Questions
Q1) Which of the following items is consistent with earnings not being informative about current performance but are informative about future earnings?
A) The firm recognizes an unexpected gain
B) The firm recognizes a fair value gain on a financial asset as a result of a favorable move in interest rates.
C) The firm recognizes additional expenses this period due to pre-opening costs associated with new stores.
D) The firm experiences a large jump in sales and earnings as a result of successful research and development of new products.
Q2) On the income statement,income from discontinued operations is shown:
A) as an accounting principle change.
B) without any income tax effect.
C) as a separate section of income from continuing operations.
D) net of taxes after income from continuing operations.
Q3) Some firms attempt to maximize the amount of restructuring charge in a particular year; analysts refer to this as the _________________________ approach.
Q4) A change in the useful life of an asset is treated as a(n)_____________
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8
Chapter 7: Financing Activities
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Sample Questions
Q1) Many firms use derivative instruments to hedge exposure to changes in the fair value of an asset or liability,or to hedge exposure to variability in expected future cash flows.As an analyst examining the financial reports of a company that uses derivative instruments to hedge,what questions should you ask when thinking about derivatives and accounting quality?
Q2) Which of the following is the date on which a company determines the owners of the stock that will receive a dividend?
A) date of record
B) measurement date
C) date of declaration
D) date of payment
Q3) All of the following are correct regarding operating leases except:
A) Cash outflow is in the form of rent payments
B) The rights to use the property for a specified period of time are conferred to the lessee by the lessor.
C) At the end of the lease the lessee returns the property to the lessor
D) Depreciation expense can be recorded on the books by the lessee
Q4) A(n)____________________ lease arrangement is one in which the lessee enjoys the use of the property for a set period of time.
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Chapter 8: Investing Activities
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Sample Questions
Q1) Expenditures included in the cost of a long-lived asset are:
A) intangible.
B) charged off.
C) expensed.
D) capitalized.
Q2) Based on the information concerning Snowflake Corp.by what amount would Penguin increase depreciable assets when it consolidates Snowflake on the acquisition date?
A) $1,775,000
B) $475,000
C) $2,250,000
D) $375,000
Q3) When a company records the cost of cutting down timber,this cost is deemed to be:
A) exploration cost.
B) asset retirement obligation.
C) development cost.
D) depletion cost.
Q4) When the functional currency is the U.S.dollar,financial reporting requires firms to use the ___________________________________ translation method.
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Chapter 9: Operating Activities
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Sample Questions
Q1) Differences between income before taxes and taxable income are either ____________________ or ____________________.
Q2) Dividing a company's income tax expense by its book income before income taxes provides the company's ___________________________________.
Q3) Assume that Madison Corp.has agreed to construct a new basketball arena for Gator Town for $70 million dollars.Construction of the new arena begins in July,2012 and is expected to be completed in March 2009.At the signing of the contract Madison Corp.estimates that the new arena will cost $60 million dollars to build.Given the following cost and building schedule determine the cumulative degree of completion and how much revenue and gross margin Madison Corp.should recognize in years 2012,2013 and 2014.
\(\begin{array} { l l l }
& \text { Casts incurred } & \text { Estimated casts } \\ \text { Year } & \text { to date } & \text { remainine } \\
2012& \$ 18,000,000 & \$ 42,000,000 \\
2013 & \$ 48,000,000 & \$ 12,000,000\\
2014 &\$ 600.000&\$0\\ \end{array}\)
Q4) What are the four disclosures required by U.S.GAAP relating to income taxes?
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Chapter 10: Forecasting Financial Statements
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Sample Questions
Q1) To ensure that the financial statements articulate,it is important that the change in the cash balance on the balance sheet each year agrees with:
A) the cash collections from sales in the projected income statement.
B) the cash provided by or used by operations on the projected statement of cash flows.
C) the net change in cash on the projected statement of cash flows.
D) the net change in working capital from period to period.
Q2) Projecting sales price changes depends on factors specific to the firm and its industry that might affect demand and price elasticity.Which of the following types of companies would most likely be able to increase prices?
A) A firm in a capital intensive industry that is expected to operate near capacity for the near future.
B) A firm in a capital intensive industry in which excess capacity exists.
C) A firm operating in an industry that is expected to experience technological improvements in its production process.
D) A firm operating in an industry that is transitioning from the high growth to the maturity phase of its life cycle.
Q3) Realistic expectations are ____________________ and ____________________.
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Page 12
Chapter 11: Risk-Adjusted Expected Rates of Return and the Dividends Valuation Approach
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Sample Questions
Q1) Dividends measure the cash that ____________________ ultimately receive from investing in an equity share.
Q2) Implementing a dividend valuation model to determine the value of the common shareholders' equity requires an analyst to measure three elements.What are the three elements that the analyst needs to measure?
Q3) Determine the weight on equity capital that should be used to calculate Zonk's weighted-average cost of capital:
A) 79.00%
B) 78.3%
C) 41.8%
D) 50%
Q4) A company with a new Capital structure will increase the __________ and at the same time the __________ risk.
Q5) Provide the rationale for using expected dividends in a valuation model.
Q6) Normally,valuation methods are designed to produce reliable estimates of the value of a firm's ______________________________.
Q7) Why are dividends value-relevant to common equity shareholders?
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Chapter 12: Valuation: Cash-Flow-Based Approaches
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64 Flashcards
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Sample Questions
Q1) Starting with net cash flow from operations and adjusting for capital expenditures and dividends equals:
A) free cash flows for all debt and equity capital stakeholders.
B) free cash flow.
C) free cash flows to common equity capital shareholders.
D) free cash flow from operations.
Q2) All of the following are logical steps that enable the analyst to determine reliable estimates of value except:
A) Understand the economics of the industry
B) Assess the particular firm's strategy
C) Evaluate the quality of the firm's accounting
D) Derive a single point estimate of value for a share's current price
Q3) Free cash flow is calculated as net cash provided by operating activities less: A) dividends.
B) capital expenditures and depreciation.
C) capital expenditures.
D) capital expenditures and dividends.
Q4) What three elements are needed to value a resource when using cash flows?
Q5) Regarding the equity buyout,compute the weighted average cost of capital of the new capital structure.
Page 14
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Chapter 13: Valuation: Earnings-Based Approaches
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Sample Questions
Q1) Clean surplus accounting means that net income includes all of the recognized elements of income for the firm for
Q2) What would be Jarrett's common shareholders' equity at the end of 2014?
A) $180,909
B) $208,161
C) $95,540
D) $112,768
Q3) Compute the value of Jarrett Corp.on January 1,2011,using the residual income valuation model.Use the half-year adjustment.
A) $112,768
B) $185,329
C) $195,540
D) $133,624
Q4) __________________ means that net income includes all of the recognized elements of income of the firm for common equity shareholders and dividends include all direct capital transactions between the firm and the common equity shareholders.
Q5) What are the three arguments economists provide against using earnings as a value-relevant attribute in valuation?
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Chapter 14: Valuation: Market-Based Approaches
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Sample Questions
Q1) If the market price of a share of stock is based on the expectations of all of the market participants and the trading volume in that stock,what would happen if the company's reputation were damaged by a scandal or defective product that caused personal injury or death?
Q2) Strictly speaking,the price-earnings ratio assumes that firm value is the:
A) future value of a constant stream of expected future earnings, discounted at a constant expected future risk-free rate.
B) future value of a constant stream of expected future earnings, discounted at a constant expected future discount rate.
C) present value of a constant stream of expected future earnings, discounted at a constant expected future risk-free rate.
D) present value of a constant stream of expected future earnings, discounted at a constant expected future discount rate.
Q3) The theoretical PE model does not work when the growth rate in ____________________ exceeds the cost of equity capital.
Q4) Economics teaches that,in equilibrium,firms will earn a return equal to the ______________________________.
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