Accounting for Decision Making Exam Materials
Course Introduction
Accounting for Decision Making introduces students to the fundamental concepts and techniques of accounting with a focus on how financial information is used to support effective business decisions. The course explores both financial and management accounting, emphasizing the interpretation, analysis, and application of accounting data in real-world organizational contexts. Topics include cost behavior, budgeting, performance evaluation, and financial statement analysis, equipping students with the skills to assess company performance, make informed strategic choices, and contribute to the decision-making process within various business environments.
Recommended Textbook
Horngren's Financial and Managerial Accounting 6th Edition by Tracie L. Miller Nobles
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Page 2
Chapter 1: Accounting and the Business Environment
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Sample Questions
Q1) Which of the following will be categorized as a financing activity on the statement of cash flows?
A) Cash received by selling old equipment
B) Cash paid for purchase of new machinery
C) Cash paid for rent
D) Cash received from issuance of shares of common stock
Answer: D
Q2) Under the going concern principle, accountants assume that the business will remain in operations long enough to use existing resources for their intended purpose.
A)True
B)False
Answer: True
Q3) The field of accounting that focuses on providing information for external decision makers is ________.
A) managerial accounting
B) financial accounting
C) cost accounting
D) nonmonetary accounting
Answer: B
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Page 3
Chapter 2: Recording Business Transactions
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Sample Questions
Q1) Which of the following statements is true of expenses?
A) Expenses increase equity, so an expense account's normal balance is a credit balance.
B) Expenses decrease equity, so an expense account's normal balance is a credit balance.
C) Expenses increase equity, so an expense account's normal balance is a debit balance.
D) Expenses decrease equity, so an expense account's normal balance is a debit balance.
Answer: D
Q2) Data from a trial balance is used to prepare the income statement, statement of retained earnings, and the balance sheet.
A)True
B)False
Answer: True
Q3) In a trial balance, total debits must always equal total credits.
A)True
B)False
Answer: True
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Page 4
Chapter 3: The Adjusting Process
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Sample Questions
Q1) The accountant of Omega, Inc. failed to make an adjusting entry to record $6,000 of unearned service revenue that has now been earned. Assume the deferred revenue was initially recorded as a liability. Which of the following statements is true?
A) The total revenue will be overstated.
B) The total revenue will be understated.
C) The total expenses will be overstated.
D) The total expenses will be understated.
Answer: B
Q2) At the time the transaction occurred, which of the following would result in an increase in net income under the accrual basis of accounting, but would not result in an increase in net income under cash basis accounting?
A) purchase of supplies for cash
B) performance of services on account
C) use of supplies purchased earlier
D) receipt of cash for services that were performed earlier on account
Answer: B
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) In an accounting cycle, an analysis of transactions is performed at the end of each accounting period.
A)True
B)False
Q2) Under which of the following categories would Accounts Payable appear?
A) long-term assets
B) current assets
C) long-term liabilities
D) current liabilities
Q3) The Accumulated Depreciation account is a permanent account.
A)True
B)False
Q4) The adjusting process zeroes out all revenue accounts and all expense accounts.
A)True
B)False
Q5) After closing entries have been posted ________.
A) the ending balance of Retained Earnings has been properly updated
B) only permanent accounts carry balances
C) dividends have been closed into Retained Earnings
D) All of the statements are correct.
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Chapter 5: Merchandising Operations
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Sample Questions
Q1) The following information relates to Sports Bikes, Inc. \[\begin{array} { | l | r | }
\hline \text { Net Sales Revenue } & \$ 216,000 \\
\hline \text { Cost of Goods Sold } & 160,000 \\
\hline \text { Interest Revenue } & 10,000 \\
\hline \text { Operating Expenses } & 40,000 \\
\hline
\end{array}\] Calculate the operating income.
A) $16,000
B) $68,000
C) $240,000
D) $26,000
Q2) Net sales revenue is calculated by ________.
A) subtracting cost of goods sold from sales revenue
B) subtracting sales discounts and selling expenses from sales revenue
C) adding sales discounts and sales returns and allowances to sales revenue
D) subtracting sales discounts and estimated sales returns and allowances from sales revenue
Q3) List four items from an invoice that are needed to record a purchase of merchandise inventory.
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Page 7
Chapter 6: Merchandise Inventory
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Sample Questions
Q1) Anderson Farms, Inc. provided the following for 2018: \[\begin{array} { | l | r | }
\hline \text { Cost of Goods Sold (Cost of sales) } & \$ 1,300,000 \\
\hline \text { Beginning Merchandise Inventory } & 340,000 \\
\hline \text { Ending Merchandise Inventory } & 630,000 \\
\hline
\end{array}\] Calculate the company's inventory turnover ratio for the year. (Round your answer to two decimal places.)
A) 3.82 times per year
B) 2.68 times per year
C) 2.06 times per year
D) 1.34 times per year
Q2) Costas, Inc. purchased inventory on account for $6,500. Prepare the journal entry to record the purchase of inventory on account. (Assume a perpetual inventory system.) Omit explanation.
Q3) When using the specific identification inventory costing method, ending inventory costs depend on which costs are assigned to the inventory sold.
A)True
B)False
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Chapter 7: Internal Control and Cash
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Sample Questions
Q1) Define internal control.
Q2) On a bank reconciliation, deposits in transit are added on the bank side of the reconciliation.
A)True B)False
Q3) The following information is needed to reconcile the cash balance for Natural Landscaping Services.
A deposit of $5,800 is in transit.
Outstanding checks total $1,500.
The book balance is $6,800 at February 28, 2019.
The bookkeeper recorded a $1,740 check as $17,400 in payment of the current month's rent.
The bank balance at February 28, 2019 was $18,000.
A deposit of $400 was credited by the bank for $4,000.
A customer's check for $3,700 was returned for nonsufficient funds.
The bank service charge is $60.
Based on this information, prepare a bank reconciliation for Natural Landscaping Services as of February 28, 2019.
Q4) List the five components of internal control.
Q5) List the four steps, the proper order, of the purchasing and payment process.
Page 9
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Chapter 8: Receivables
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Sample Questions
Q1) The Allowance for Bad Debts account ________.
A) is a liability account
B) holds the pool of "unknown" uncollectible accounts
C) increases with a debit
D) is added to accounts receivable
Q2) At the beginning of 2019, Patriots, Inc. has the following account balances: Accounts
Receivable $45,000 (Debit)
Allowance for Bad Debts $8,000 (Credit)
Bad Debts Expense $0
During the year, credit sales amounted to $810,000. Cash collected on credit sales amounted to $770,000, and $18,000 has been written off. At the end of the year, the company adjusted for bad debts expense using the percent-of-sales method and applied a rate, based on past history, of 3.5%. The amount of bad debts expense for 2019 is ________.
A) $28,350
B) $56,875
C) $18,000
D) $18,350
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Page 10
Chapter 9: Plant Assets, Natural Resources, and Intangibles
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Sample Questions
Q1) 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
Q2) Brentwood Auto Repair purchased a new machine and placed it in service on June 14. Which of the following is NOT included in the cost of equipment?
A) cost of testing the machine on June 12
B) purchase commission
C) sales tax
D) a six month insurance policy which was paid on June 5 and became effective on June 15
Q3) Annie, Inc. purchased a computer for $5,000. During 2018 and 2019, the company recorded total depreciation of $4,000 on the computer. On January 1, 2020, the company exchanges the computer for a new one, paying $4,000 cash. The market value of the new computer is $6,000. Prepare the journal entry to record this transaction. Assume the exchange has commercial substance. Omit explanation.
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Chapter 10: Investments
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Sample Questions
Q1) Trading debt investments are categorized as noncurrent assets.
A)True
B)False
Q2) When a loss is recorded on the sale of a significant influence equity investment, ________.
A) total assets will increase B) equity will increase C) total assets will decrease D) equity will remain unchanged
Q3) Just as individuals invest in a variety of companies' stocks and bonds, the same is true for businesses.
A)True
B)False
Q4) Long-term investments include debt and equity securities that the investor expects to hold longer than one year or debt or equity securities that are not readily marketable. A)True
B)False
Q5) 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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Sample Questions
Q1) Vacation, health, and pension benefits must be estimated and recorded as a liability.
A)True
B)False
Q2) Medicare taxes are a required column in a payroll register.
A)True
B)False
Q3) Current liabilities must be paid either in cash or with goods and services within one year or within the entity's operating cycle, if the cycle is longer than a year.
A)True
B)False
Q4) A journal entry is prepared to reclassify the current portion of a note payable.
A)True
B)False
Q5) Jamison Enterprises estimates that it will pay a 5% bonus on annual net income after deducting the bonus. If Jamison reports net income of $480,000 before the calculation of the bonus, the amount of the bonus is $24,000.
A)True
B)False
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Chapter 12: Long-Term Liabilities
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Sample Questions
Q1) Compute the present value of $46,000, invested for six years at 8%. Present value of $1:
\[\begin{array} { | l | l | l | l | l | l | }
\hline & 5 \% & 6 \% & 7 \% & 8 \% & 9 \% \\
\hline 3 & 0.864 & 0.840 & 0.816 & 0.794 & 0.772 \\
\hline 4 & 0.823 & 0.792 & 0.763 & 0.735 & 0.708 \\
\hline 5 & 0.784 & 0.747 & 0.713 & 0.681 & 0.650 \\
\hline 6 & 0.746 & 0.705 & 0.666 & 0.630 & 0.596 \\
\hline 7 & 0.711 & 0.665 & 0.623 & 0.583 & 0.547 \\
\hline
\end{array}\]
A) $36,647
B) $25,300
C) $32,660
D) $28,980
Q2) On December 31, 2018, Anderson Hardware Company purchases $300,000 of property by paying $50,000 in cash and signing a 10-year mortgage note at 13% for the balance. The amortization schedule shows that the company will pay $46,072 per year.
Journalize the first yearly payment on December 31, 2019. Omit explanation.
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Page 14
Chapter 13: Stockholders Equity
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Sample Questions
Q1) Most states prohibit corporations from paying a dividend if a deficit will occur.
A)True
B)False
Q2) On November 1, 2019, Juno, Inc. declared a dividend of $3.00 per share on common stock. Juno, Inc. has 10,000 shares of common stock outstanding and 20,000 shares of preferred stock. The date of record is November 15, and the payment date is November 30, 2019. Regarding the date of record, which of the following statements is true?
A) No journal entry is made on the date of record.
B) The liability must be recorded on the date of record.
C) Cash is disbursed to shareholders on the date of record.
D) The company transfers cash to a brokerage firm on the date of record.
Q3) The par value of stock is ________.
A) the current selling price of stock
B) the highest price for which a share can sell
C) the price paid if the corporation purchases its own stock back
D) the amount assigned by a company to a share of its stock
Q4) Thomas Business Supply reported a negative amount in Retained Earnings. What term describes this negative amount? What can cause this to happen?
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Page 15
Chapter 14: The Statement of Cash Flows
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Sample Questions
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) Investors who want to know the amount of cash a company has available for new opportunities, such as expanding into a new sales region, should analyze the company's
A) free cash flow
B) net cash flow from investing activities
C) acid ratio
D) earnings per share
Q3) The direct method restates the income statement in terms of cash.
A)True
B)False
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Chapter 15: Financial Statement Analysis
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Sample Questions
Q1) Mercer, Inc. provides the following data for 2019: \[\begin{array} { | l | l | }
\hline \text { Net Sales Revenue } & 602,000 \\
\hline \text { Cost of Goods Sold } & 380,000 \\
\hline
\end{array}\] The gross profit as a percentage of net sales is ________. (Round your answer to two decimal places.)
A) 35.24%
B) 36.88%
C) 63.12%
D) 38.21%
Q2) The relationship between total liabilities and total assets is the ________.
A) debt ratio
B) debt to equity ratio
C) current ratio
D) earnings per share
Q3) The acid-test ratio measures a company's ability to pay all its current liabilities if they came due immediately.
A)True
B)False
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Page 17
Chapter 16: Introduction to Managerial Accounting
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Sample Questions
Q1) The unit product cost is only part of the information that is needed to determine the sales price for each product.
A)True
B)False
Q2) Manufacturing costs flow from Work-in-Process Inventory to Cost of Goods Sold to Finished Goods Inventory.
A)True
B)False
Q3) The cost of goods manufactured includes selling expenses, administrative expenses, and manufacturing overhead.
A)True
B)False
Q4) Freight costs paid to ship raw materials to a company warehouse are considered product costs.
A)True
B)False
Q5) How does a manufacturing company calculate unit product cost? Why do managers need to know the unit product cost?
Q6) Define direct cost.
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Chapter 17: Job Order Costing
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Sample Questions
Q1) Overallocated manufacturing overhead occurs when the manufacturing overhead allocated to Work-in-Process Inventory is less than the amount actually incurred.
A)True
B)False
Q2) Which of the following is a reason why a job order costing system is appropriate for a custom furniture manufacturer?
A) The cost incurred for each job will differ as per the order specifications.
B) The direct costs incurred for each job are the same, only indirect costs vary.
C) The raw materials used have already been accounted for using process costing.
D) Custom furniture manufacturers produce large quantities of similar products.
Q3) Which of the following describes the allocation base for allocating manufacturing overhead costs?
A) the primary cost driver of indirect manufacturing costs
B) the estimated base amount of manufacturing overhead costs in a year
C) the percentage used to allocate direct labor to Work-in-Process Inventory
D) the main element that causes direct costs
Q4) Why would the manager of a service company need to use job order costing?
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Chapter 18: Process Costing
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Sample Questions
Q1) List five ways in which managers use a production cost report to make decisions for their companies.
Q2) Which of the following is an example of how managers use production cost reports to control costs?
A) setting product prices high enough for the company to be profitable
B) providing cost of goods sold for the income statement
C) determining if newer, more efficient equipment should be acquired
D) promoting products that are most profitable
Q3) When calculating the cost per equivalent unit in process costing, what is the difference between the weighted-average and FIFO methods?
A) With FIFO, prior period costs are not combined with current period costs.
B) With FIFO, prior period costs are combined with current period costs.
C) With weighted-average, prior period costs are not combined with current period costs.
D) There is no difference between the two methods.
Q4) Under the first-in, first-out (FIFO) method, prior period costs are not merged with current period costs.
A)True
B)False
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Chapter 19: Cost Management Systems: Activity-Based
Just-In-Time
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Q1) Activity-based management (ABM) can be used to make pricing and product mix decisions.
A)True
B)False
Q2) Appraisal costs are costs incurred ________.
A) to avoid poor-quality goods or services
B) to detect poor-quality materials, goods, or services
C) when the company corrects poor-quality goods or services before delivery to customers
D) after the company delivers poor-quality goods or services to customers and then has to make things right with the customer
Q3) The common factor in all quality management systems is the desire to improve the business's performance by providing quality products or services.
A)True
B)False
Q4) What is activity-based management? How is it different from activity-based costing?
Q5) Managers can use activity-based management to make what two kinds of decisions?
Q6) Define target cost. How is target cost determined? Page 21
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Page 22
Chapter 20: Cost Volume Profit Analysis
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Sample Questions
Q1) The amount by which sales can decrease before the company incurs an operating loss is called the breakeven point.
A)True
B)False
Q2) Identify each cost below as variable (V), fixed (F), or mixed (M), relative to units sold. Explain the reason for your answer.
\[\begin{array} { | l | r | r | r | }
\hline \text { Units Produced } & 100 & 500 & 1,000 \\
\hline \text { Total electric cost } & \$ 1,500 & \$ 1,650 & \$ 1,700 \\
\hline \text { Supervisor's monthly salary } & \$ 4,500 & \$ 4,500 & \$ 4,500 \\
\hline \text { Assembly line workers' per hour wage rate } & \$ 30 & \$ 30 & \$ 30 \\
\hline \text { Total materials cost } & \$ 800 & \$ 4,000 & \$ 8,000 \\
\hline \text { Depreciation on factory equipment } & \$ 5,000 & \$ 5,000 & \$ 5,000 \\
\hline \text { Total delivery costs } & \$ 1,400 & \$ 1,800 & \$ 2,250 \\
\hline
\end{array}\]
Q3) List the cost-volume-profit (CVP) assumptions.
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23
Chapter 21: Variable Costing
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Q1) By separating costs by behavior, fixed and variable, a service company can calculate the contribution margin ratio by dividing the contribution margin by revenues.
A)True
B)False
Q2) When units produced are less than units sold, how does operating income differ between variable costing and absorption costing? Explain your answer.
Q3) In absorption costing, the manufacturing costs expensed are greater than the amount expensed in variable costing when units produced are less than sold because the units in beginning inventory under absorption costing were assigned a greater cost in the previous accounting period.
A)True
B)False
Q4) In variable costing, the balance of ending Finished Goods Inventory includes fixed manufacturing overhead.
A)True
B)False
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Chapter 22: Master Budgets
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Q1) A budget is a financial plan that managers use to coordinate a business's activities.
A)True
B)False
Q2) For a manufacturing company, the budgeted income statement is a cash basis income statement.
A)True
B)False
Q3) For manufacturing companies, the primary source of cash is from its customers.
A)True
B)False
Q4) In the cost of goods sold budget, projected manufacturing cost per unit of product sold does NOT include ________ cost per unit.
A) sales commission
B) direct materials
C) variable manufacturing overhead
D) direct labor
Q5) The forecast of sales revenue is the cornerstone of the master budget.
A)True
B)False
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) During the month, the actual variable costs per unit were lower than the expected variable costs per unit as per the static budget. This difference results in a(n)
A) favorable flexible budget variance for variable costs
B) favorable sales volume variance for variable costs
C) unfavorable flexible budget variance for variable costs
D) unfavorable sales volume variance for variable costs
Q2) Myers Manufacturing uses a standard cost system. The allocation base for overhead costs is direct labor hours. Standard and actual data for manufacturing overhead are as follows:
Variable overhead allocation rate: $30 per direct labor hour
Fixed overhead allocation rate: $10 per direct labor hour
Actual overhead incurred (variable and fixed): $45,600
Standards for direct labor are as follows:
Hours per unit 0.5, Direct labor cost per hour $18.00
Actual direct labor for the month: 1,200 hours for a total cost of $24,000
Actual and planned production for the month: 3,000 units
Prepare the journal entry to allocate overhead cost (both variable and fixed) to production.
Q3) What does the fixed overhead volume variance measure?
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Chapter 24: Responsibility Accounting and Performance Evaluation
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Q1) In an investment center, the manager is primarily responsible for ________.
A) controlling costs
B) generating revenues
C) generating revenues and controlling costs
D) generating profits and efficiently managing invested capital
Q2) Sandpiper Inc. has a division that manufactures a component that sells for $150 and has a variable cost of $30. Another division of the company wants to purchase the component. Fixed cost per unit of the component is $20. What is the minimum transfer price if the division is operating at capacity?
A) $150
B) $30
C) $50
D) $20
Q3) To adequately evaluate an investment center's financial performance, summary performance measures should include both the division's operating income and its assets.
A)True
B)False
Q4) Explain the difference between a controllable and a noncontrollable cost.
Q5) List and briefly discuss the two limitations of financial performance measures.
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Chapter 25: Short-Term Business Decisions
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Q1) Motion Rollerblades has three product lines-D, E, and F. The following information is available: \(\begin{array}{|l|l|l|l|}
\hline& \mathrm{D} & \mathrm{E} & \mathrm{F} \\
\hline \text { Sales revenue } & \$ 90,000 & \$ 40,000 & \$ 31,000 \\
\hline \text { Variable costs } & (40,000) & (15,000) & (10,000) \\
\hline \text { Contribution margin } & \$ 50,000 & \$ 25,000 & \$ 21,000 \\
\hline \text { Fixed costs } & (20,000) & (15,000) & \underline{(23,000)} \\
\hline \text { Operating income (loss) } & \$ 30,000 & \$ 10,000 & \$(200) \\ \hline \end{array}\)
The company is deciding whether to drop product line F because it has an operating loss. Assuming fixed costs are unavoidable, if Motion drops product line F and does not replace it, what effect will this have on operating income?
A) Operating income will increase $2000.
B) Operating income will increase $21,000.
C) Operating income will increase $23,000.
D) Operating income will decrease $21,000.
Q2) Define the terms "Relevant Cost" and "Sunk Cost."
Q3) Identify the four steps in the decision-making process.
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Page 28
Chapter 26: Capital Investment Decisions
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Q1) Cash inflows include future cash revenue generated from an investment and any future residual value of the asset but exclude any future savings in ongoing cash operating costs resulting from the investment.
A)True
B)False
Q2) All of the following are considered cash inflows except the
A) future cash revenue generated by the investment
B) future savings in ongoing cash operating costs
C) future residual value of the capital investment
D) future additional operating costs of the investment
Q3) The process for calculating present values is often called discounting future cash flows because future amounts are discounted to their present value.
A)True
B)False
Q4) The only difference between the present value and future value of a lump sum is the amount of interest that is earned in the intervening time span.
A)True
B)False
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Chapter 27: Understanding Accounting Information Systems
and their Components
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Sample Questions
Q1) An accounting information system collects, records, stores, and processes accounting data to produce information that is useful for decision makers.
A)True
B)False
Q2) The accounting is the same regardless of whether a business uses a manual or a computerized accounting information system.
A)True
B)False
Q3) A computerized system uses software to process transactions. Thus employees are no longer required to manually journalize and post transactions to the accounts.
A)True
B)False
Q4) Which of the following is an input device in an accounting information system?
A) keyboard
B) Internet protocol
C) printer
D) router
Q5) Describe the transactions recorded in the cash payments journal.
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