Accounting for Decision Making Exam
Materials
Course Introduction
Accounting for Decision Making introduces students to the fundamental principles and techniques of accounting as they relate to effective business decision-making. The course covers the interpretation and analysis of financial statements, budgeting, cost-volume-profit analysis, and relevant costing for managerial decisions. Emphasis is placed on how accounting information supports planning, controlling, and evaluating business operations, enabling students to make informed choices in a variety of business contexts. Through real-world examples and practical exercises, students develop the skills to apply accounting data to strategic decisions, resource allocation, and performance measurement.
Recommended Textbook
Horngrens Financial and Managerial Accounting The Managerial Chapters 5th Edition by Miller
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Chapter 1: Accounting and the Business Environment
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Sample Questions
Q1) Caleb Brown has been the sole owner of a bicycle sales and repair shop for several years.Which of the following business types would limit Caleb's personal liability exposure to the entity's debts?
A)partnership
B)limited-liability company
C)sole proprietorship
D)limited-liability partnership
Answer: B
Q2) Which financial statement includes a specific date in its heading?
A)Statement of retained earnings
B)Statement of cash flows
C)Income statement
D)Balance sheet
Answer: D
Q3) A creditor is any person who has an ownership interest in a business.
A)True
B)False
Answer: False
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Chapter 2: Recording Business Transactions
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Q1) The account title used for recording the payment of rent in advance for an office building is ________.
A)Prepaid Rent
B)Rent Payable
C)Rent Revenue
D)Rent Expense
Answer: A
Q2) The Salaries Payable account is a(n)________.
A)liability account with a normal debit balance
B)asset account with a normal debit balance
C)liability account with a normal credit balance
D)asset account with a normal credit balance
Answer: C
Q3) Revenues and contributions of the stockholders in the business increase equity.
A)True
B)False Answer: True
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Page 4
Chapter 3: The Adjusting Process
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Sample Questions
Q1) Which of the following accounting terms assumes that a business's activities can be divided into small segments and that financial statements can be prepared for specific periods,such as a month,quarter,or year?
A)adjusting entry concept
B)economic entity concept
C)matching principle
D)time period concept
Answer: D
Q2) Deferred revenues are assets because the business has collected the cash before earning the revenue.
A)True
B)False
Answer: False
Q3) Which of the following is considered a fiscal year?
A)six months
B)three months
C)twelve months
D)four months
Answer: C
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Page 5
Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) The current ratio shows the profitability of a firm.
A)True
B)False
Q2) Adjusting journal entries are prepared ________.
A)after preparing the adjusted trial balance
B)after preparing the unadjusted trial balance
C)after posting the closing entries
D)after preparing the financial statements
Q3) Permanent accounts are not closed at the end of the accounting period.
A)True
B)False
Q4) Only permanent accounts appear on the post-closing trial balance.
A)True
B)False
Q5) Under which of the following categories would bonds held as an investment for more than a year appear?
A)Current assets
B)Long-term liabilities
C)Long-term assets
D)Current liabilities
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Chapter 5: Merchandising Operations
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Sample Questions
Q1) A company made net sales revenue of $530,000,and cost of goods sold totaled $238,500.Calculate its gross profit percentage.
A)55%
B)45%
C)130%
D)300%
Q2) Which of the following is the correct formula for calculating gross profit percentage?
A)Net profit / Net sales revenue
B)Gross profit / Net sales revenue
C)Net sales revenue / Net profit
D)Net sales revenue / Gross profit
Q3) Portian Merchandisers has purchased merchandise on account and paid $450 for freight in.Give the journal entry for freight paid.(Assume a perpetual inventory system. )
Q4) Provide journal entries to close the Income Summary account and the Dividends account.
Q5) Operating income is gross profit minus operating expenses.
A)True
B)False
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Chapter 6: Merchandise Inventory
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Q1) A lower days' sales in inventory for Moonshine,Inc. ,when compared to other companies,indicates that it is ________.
A)selling its inventory more quickly
B)spending more on inventory storage
C)incurring higher insurance costs
D)holding excess obsolete inventory
Q2) An overstatement of ending merchandise inventory in the current period results in an understatement of cost of goods sold in the current period.
A)True
B)False
Q3) Given the same purchase and sales data,and assuming the cost of inventory is rising,the costing methods for inventory will result in different amounts for cost of goods sold.
A)True
B)False
Q4) List and briefly discuss three measures that can be taken to maintain good controls over merchandise inventory.
Q5) What does inventory turnover measure? What does a high rate of inventory turnover indicate?
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Chapter 7: Internal Control and Cash
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Sample Questions
Q1) When a check is issued,the party who is paying the cash is referred to as the
A)payee
B)maker
C)bank signatory
D)depositor
Q2) The difference that arises between the balance on the bank statement and the balance on the company's books because of a time lag in recording transactions is known as a timing difference.
A)True
B)False
Q3) There are three parties to a check: the depositor,the maker,and the bank.
A)True
B)False
Q4) The bank recorded a $3,000 deposit as $300.How would this information be included on the bank reconciliation?
A)a deduction on the bank side
B)a deduction on the book side
C)an addition on the book side
D)an addition on the bank side
Page 9
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Chapter 8: Receivables
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Sample Questions
Q1) The Allowance for Bad Debts has a credit balance of $8,000 before the adjusting entry for bad debts expense.After analyzing the accounts in the accounts receivable subsidiary ledger using the aging-of- receivables method,the company's management estimates that uncollectible accounts will be $17,000.What will be the amount of Bad Debts Expense reported on the income statement?
A)$25,000
B)$9,000
C)$17,000
D)$8,000
Q2) Prepare the journal entry to record an uncollectible account receivable of $10,000,using the direct write-off method.
Q3) Which of the following statements,regarding notes receivable,is incorrect?
A)Notes receivable usually have longer terms than accounts receivable.
B)A notes receivable is a written promise that a customer will pay a fixed amount of principal plus interest by a certain date in the future.
C)All notes receivable are considered long-term assets.
D)Notes receivable are sometimes called promissory notes.
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Page 10
Chapter 9: Plant Assets, natural Resources, and Intangibles
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Sample Questions
Q1) The lump-sum amount paid for a group of assets is divided among the acquired assets based on their relative market values.This method is known as the relative-market-value method.
A)True
B)False
Q2) Rightz Petroleum Products owns furniture that was purchased for $20,000.Accumulated depreciation is $16,000.The furniture was sold for $3,800.Prepare the journal entry to record this transaction.
Q3) Which of the following asset categories would include the cost of clearing land and removing unwanted buildings?
A)land
B)buildings
C)land improvements
D)machinery and equipment
Q4) According to Generally Accepted Accounting Principles,if the fair value of goodwill decreases below its book value,an impairment loss must be recorded.
A)True
B)False
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Chapter 10: Investments
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Sample Questions
Q1) Securities are represented by a certificate and are commonly traded on an exchange.
A)True
B)False
Q2) On the maturity date of a bond investment,the journal entry includes ________.
A)a debit to Cash and a credit to Long-term Investments - Held-to-Maturity
B)a debit to Long-term Investments - Held-to-Maturity and a credit to Cash
C)a debit to the Interest Revenue and a credit to Cash
D)a debit to Cash and a credit to Interest Revenue
Q3) Held-to-maturity investments applies only to debt securities because ________.
A)these securities earn periodic interest
B)equity securities do not mature on a specific date
C)these are long-term investments
D)equity securities are held for a short period of time
Q4) The fair value of a trading security is the price that would be used if the company were to sell the investment on the market.
A)True
B)False
Q5) List and discuss two common reasons why companies invest in debt or equity securities.
Page 12
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Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) Dan Jones and Pat Smith are two employees of Lone Star,Inc.In January 2017,Dan's gross pay was $11,500,and Pat's gross pay was $15,400.All earnings are subject to FICA-OASDI Tax of 6.2% and FICA-Medicare Tax of 1.45%.Which of the following would be included in the entry to record the payroll tax expense to be paid out by Lone Star,Inc.for January?
A)a debit to Salaries Payable to employees for $390.05
B)a debit to FICA-OASDI Taxes Payable for $390.05
C)a credit to FICA-Medicare Taxes Payable for $390.05
D)a credit to Salaries Expense for $390.05
Q2) A ________ is a schedule that summarizes the earnings,withholdings,and net pay for each employee.
A)payroll register
B)bin card
C)cash ledger
D)bank reconciliation statement
Q3) Medicare is a required column in a payroll register.
A)True
B)False
Q4) If the likelihood of a future event is remote,how should the company report the contingency?
Page 13
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Chapter 12: Long-Term Liabilities
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Sample Questions
Q1) If bonds with a face value of $205,000 are issued at 110,the amount of cash proceeds is ________.
A)$225,390
B)$205,000
C)$186,364
D)$225,500
Q2) When bonds are retired at maturity ________.
A)the bondholders are paid the the face value plus the unamortized premium or less the unamortized discount
B)the carrying value equals the face value plus the unamortized premium or less the unamortized discount
C)the carrying value always equals the face value
D)the entry to retire the bonds may include a gain or loss on retirement of bonds
Q3) On January 1,2017,Shea Landscaping borrowed $100,000 on a 15%,10-year note with annual installment payments of $10,000 plus interest due on December 31 of each year.Prepare the journal entry for the first installment payment made on December 31,2017.
Q4) When computing a bond's cash flow for interest,which interest rate is used? Why?
Q5) When computing the present value of a bond,which interest rate is used? Why?
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Chapter 13: Stockholders Equity
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Sample Questions
Q1) Regarding the statement of stockholders' equity,which of the following statements is incorrect?
A)The statement of stockholders' equity has more information than the statement of retained earnings because it reports the changes in all stockholders' equity accounts.
B)The statement of stockholders' equity does not show the changes to the Retained Earnings account because that information is provided in the statement of retained earnings.
C)The statement of stockholders' equity is an option for reporting the changes in stockholders' equity of a corporation.
D)The statement of stockholders' equity reports the number of shares and any changes during the year in preferred,common,and treasury stock.
Q2) On December 2,2017,St.Augustine,Inc.purchases land.In exchange for the land,St.Augustine,Inc.issues 8,000 shares of common stock with $1.00 par value.The land has been appraised at a market value of $400,000.Prepare the journal entry for this transaction.
Q3) A higher price/earnings ratio signifies a higher return on investment.
A)True B)False
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Page 15
Chapter 14: The Statement of Cash Flows
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Sample Questions
Q1) Which of the following sections of the statement of cash flows includes activities that affect net income on the income statement?
A)the financing activities section
B)the operating activities section
C)the investing activities section
D)the non-cash investing and financing section
Q2) Brown,Inc.owed one of its creditors $350,000,but it did not have enough cash to repay the debt.Following lengthy negotiations,the parties agreed that Brown,Inc.would issue 50,000 shares of common stock to settle the debt.On the statement of cash flows,this transaction is shown in the ________.
A)investing activities section
B)financing activities section
C)operating activities section
D)non-cash investing and financing activities section
Q3) Free cash flow is the amount of cash available from operating activities before paying for planned investments in long-term assets.
A)True
B)False
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Chapter 15: Financial Statement Analysis
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Sample Questions
Q1) A corporation's income statement includes some unique items that do not often apply to smaller businesses.
A)True
B)False
Q2) Which of the following is not a part of a corporation's annual report?
A)report of independent registered public accounting firm
B)MD&A
C)notes to financial statements
D)horizontal and vertical analysis
Q3) Management's discussion and analysis of financial condition and results of operations section of the annual report is the company's attempt to explain its financial statements and discuss its performance.
A)True
B)False
Q4) The formula for calculating the cash ratio is calculated is ________.
A)(Cash)/ Total liabilities
B)(Cash + Cash equivalents)/ Total current liabilities
C)(Cash + Cash equivalents)/ Total assets
D)(Cash equivalents)/ Total current liabilities
Q5) What is a common-size statement? Why are these statements useful?
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Chapter 16: Introduction to Managerial Accounting
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Q1) ________ is a philosophy of continuous improvement of products and processes.
A)Just-in-Time (JIT)Management
B)Enterprise Resource Planning (ERP)
C)Supply Chain Management (SCM)
D)Total Quality Management (TQM)
Q2) Managerial accounting can be used to calculate costs for service and merchandising companies.
A)True
B)False
Q3) A merchandiser does not need to calculate cost per unit because it resells goods that are already manufactured.
A)True
B)False
Q4) 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
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Chapter 17: Job Order Costing
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Q1) Broxsie Fabrication,Inc.issued $60,000 of direct materials and $15,500 of indirect materials to production.Prepare the journal entry to record the transaction.
Q2) Dezire Travel Services provided the following information: Direct labor rate: $80 per hour
Predetermined overhead allocation rate for indirect costs: $18 per direct labor hour If Dezire earns $1,600 for a job requiring 10 hours of direct labor,then Dezire will make a profit of $800.
A)True
B)False
Q3) What causes manufacturing overhead to be overallocated? When manufacturing overhead is overallocated,will the Manufacturing Overhead account have a debit or a credit balance?
Q4) Why would the manager of a service company need to use job order costing?
Q5) The amount of taxes and insurance incurred and paid for the plant of a manufacturing company should be debited to the Manufacturing Overhead account. A)True
B)False
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Chapter 18: Process Costing
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Sample Questions
Q1) The Assembling Department of Oberon,Inc.had 11,000 units in process on December 1 and received 30,400 units from the Sewing Department.During the month,it completed 20,700 units and transferred them to the Packaging Department.Calculate the number of units accounted for by the Assembling Department for December.The company uses the FIFO method.
A)20,700 units
B)41,400 units
C)11,000 units
D)30,400 units
Q2) Process costing is the most appropriate costing method for a restaurant serving specialty cuisine.
A)True
B)False
Q3) Under process costing,the costs incurred by each department are reported in a separate production cost report for each department.
A)True
B)False
Q4) What does the concept of equivalent units of production allow businesses to measure?
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Chapter 19: Cost Management Systems: Activity-Based,
and Quality Management Systems
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Sample Questions
Q1) Quality costs are easy to measure.
A)True
B)False
Q2) What is a quality management system? What is the common factor in all quality management systems?
Q3) Companies using just-in-time management systems are far more vulnerable to production shutdowns if they receive poor-quality or defective raw materials.
A)True
B)False
Q4) Which of the following triggers manufacturing under the just-in-time management system?
A)increased purchases
B)consumer demand
C)government pressure
D)budgeted profit
Q5) Managers can use activity-based management to make what two kinds of decisions?
21
Q6) Direct materials cost and direct labor cost can be ________ ________ to products.Manufacturing overhead costs are ________ in cost pools and then ________ to products.
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Chapter 20: Cost-Volume-Profit Analysis
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Q1) Jenna Manufacturers produces flooring material.The monthly fixed costs are $16,000 per month.The sales price per unit is $95 and variable cost per unit is $35.If Jenna's managers create a CVP graph from volume levels of zero to 800 units,at what sales level (in units)will the revenue and total cost lines intersect? (Round your answer up to the nearest whole unit. )
A)267 units
B)169 units
C)458 units
D)124 units
Q2) Decreases in fixed cost ________ contribution margin per unit and ________ the breakeven point.
Q3) An increase in sales price per unit decreases the contribution margin per unit.
A)True
B)False
Q4) Operating leverage predicts the effects fixed costs have on changes in operating income when sales volume changes.
A)True
B)False
Q5) How is the contribution margin ratio calculated?
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Chapter 21: Variable Costing
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Q1) When determining the product costs for long-term planning,________.
A)the research and development cost of the product should be ignored
B)variable costing is more appropriate
C)absorption costing is more appropriate
D)the selling and administrative expenses should be ignored
Q2) In variable costing,the balance of ending Finished Goods Inventory includes fixed manufacturing overhead.
A)True
B)False
Q3) Under absorption costing,the more units added to ending Finished Goods Inventory,the less fixed manufacturing overhead is '"hidden" in ending Finished Goods Inventory at the end of the accounting period.
A)True
B)False
Q4) The level of inventory on hand at the end of the year does not affect the amount of operating income calculated under variable costing and absorption costing.
A)True
B)False
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Chapter 22: Master Budgets
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Q1) Eleanor's Mittens,Inc. ,a merchandising company,wants to prepare the budgeted balance sheet for the next budget period.For this purpose,the amount of ending cash balance can be retrieved from the ________.
A)capital expenditures budget
B)budgeted funds flow statement
C)cash budget
D)sales budget
Q2) A company with different segments using different software configurations can easily combine budget data of different segments to create the master budget.
A)True
B)False
Q3) All of the information that is needed to prepare the budgeted statement of cash flows comes from the budgeted income statement.
A)True
B)False
Q4) A strategic budget will be as detailed as an operational budget.
A)True
B)False
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) Unfavorable variances are subtracted from each other to arrive at a favorable variance.
A)True
B)False
Q2) When using management by exception,the purchasing manager should be questioned for which of the following variances?
A)direct materials efficiency
B)variable overhead efficiency
C)direct materials cost
D)direct labor efficiency
Q3) A flexible budget summarizes revenues and costs for various levels of sales volume within a relevant range.
A)True
B)False
Q4) In a standard cost system,the standard overhead allocation rate replaces the predetermined overhead allocation rate but the concept is the same.
A)True
B)False
Q5) List the direct materials variances,and briefly describe each.
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Chapter 24: Responsibility Accounting and Performance Evaluation
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Q1) Managerial accountants can design performance evaluation systems that encourage goal congruence.
A)True
B)False
Q2) Centralized companies split their operations into segments and top management delegates decision making to the segment managers.
A)True
B)False
Q3) Which of the following managers is likely to have the least amount of responsibilities?
A)the manager of a cost center
B)the manager of a profit center
C)the manager of an investment center
D)the manager of a transfer pricing center
Q4) Which of the following affects the company's ability to make on-time deliveries?
A)return on investment
B)product's price
C)warranty claims
D)production cycle time
Q5) List the primary goals of performance evaluation systems.
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Chapter 25: Short-Term Business Decisions
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Q1) Isabelle's Furniture manufactures a small table and a large table.The small table sells for $700,has variable costs of $560 per table,and takes 10 direct labor hours to manufacture.The large table sells for $1,600,has variable costs of $970,and takes eight direct labor hours to manufacture.The company has a maximum of 5,000 direct labor hours per month when operating at full capacity.If there are no constraints on sales of either product,and the company could choose any proportions of product mix that they wanted,what is the optimum product mix to maximize operating income of the company?
A)500 units of small and 625 units of large
B)0 units of small and 625 units of large
C)625 units of small and 500 units of large
D)500 units of small and 0 units of large
Q2) When considering whether to replace the building roof,the total amount paid for previous roof repairs is relevant to the business decision.
A)True
B)False
Q3) A customer of Mason Manufacturing has requested a one-time order at a reduced sales price.Before making the special pricing decision,what are three questions that management of Mason Manufacturing must consider?
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Chapter 26: Capital Investment Decisions
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Q1) When computing the present value,the interest rate will vary depending on the amount of risk.Riskier investments,such as FDIC-insured bank deposits,command higher interest rates.
A)True
B)False
Q2) Under conditions of limited resources,when a company is comparing several investments with different amounts of initial cost,the decision should be made on the basis of the ________.
A)highest total cash inflows
B)shortest payback period
C)highest profitability index
D)highest NPV
Q3) List the steps of the capital budgeting process and identify actions that relate to each step.
Q4) What are the strengths of the net present value capital budgeting method?
Q5) Which of the following is a capital budgeting method?
A)return on assets
B)net present value
C)inventory turnover
D)return on equity
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Chapter 27: Accounting Information Systems
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Q1) Prenumbered source documents provide necessary control in a system by automatically assigning a sequential number to each new transaction.
A)True
B)False
Q2) On April 1,a hardware retailer purchases inventory on account for $1,500.Which of the following correctly describes the effect of this transaction? Assume a perpetual inventory system is used.
A)Merchandise Inventory decreases by $1,500 and Accounts Receivable decreases by $1,500.
B)Merchandise Inventory decreases by $1,500 and Accounts Receivable increases by $1,500.
C)Merchandise Inventory increases by $1,500 and Accounts Payable decreases by $1,500.
D)Merchandise Inventory increases by $1,500 and Accounts Payable increases by $1,500.
Q3) Cash purchases are recorded in the purchases journal.
A)True
B)False
Q4) Describe the transactions recorded in the cash payments journal.
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