Accounting for Decision Making Exam Practice Tests
Course Introduction
Accounting for Decision Making explores how accounting information serves as a critical tool for managerial planning, control, and strategic decision-making. This course introduces students to key concepts such as cost behavior, budgeting, performance analysis, and financial statement interpretation. Emphasis is placed on applying quantitative and qualitative accounting data to real-world business scenarios, enabling students to identify opportunities, assess financial impacts, and make informed decisions that drive organizational success. By integrating case studies and practical exercises, the course fosters analytical skills and a deeper understanding of how accounting supports effective management in both short-term operations and long-term strategic goals.
Recommended Textbook
Horngren's Accounting 8th Australia Edition by Tracie Nobles
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Chapter 1: The Role of Accounting in Decision Making
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Q1) Hamilton Lawn Service earned $1 000 for services rendered and collected cash from its customer.What is the effect on accounts?
A) Cash account increases; Accounts receivable increases.
B) Cash account increases; Owners' capital account increases.
C) Cash account increases; Supplies account decreases.
D) Cash account increases; Accounts payable increases.
Answer: B
Q2) Which of the following is the CORRECT accounting equation?
A) Assets + Revenue = Liabilities + Expenses
B) Assets = Liabilities + Owners' equity
C) Assets + Revenue = Owners' equity
D) Assets + Liabilities = Owners' equity
Answer: B
Q3) A $5 000 account payable is paid by the business.How is the accounting equation affected?
A) Assets decrease $5 000; liabilities decrease $5 000.
B) Assets decrease $5 000; owners' equity increases $5 000.
C) Assets increase $5 000; owners' equity decreases $5 000.
D) Assets increase $5 000; liabilities increase $5 000.
Answer: A
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Chapter 2: Recording Business Transactions
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Q1) When a business records revenue earned,the revenue account is always credited.
A)True
B)False Answer: True
Q2) In a typical chart of accounts,liabilities appear before assets.
A)True
B)False Answer: False
Q3) In a trial balance,total debits are always equal to total credits.
A)True
B)False
Answer: True
Q4) For liabilities and revenues,a debit increases the account.
A)True
B)False Answer: False
Q5) A trial balance is a list of all of the accounts with their balances.
A)True
B)False
Answer: True
Page 4
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Chapter 3: The Adjusting Process
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Q1) Entries that record cash collected before the revenues are earned are:
A) accrued revenues.
B) unearned revenues.
C) accrued expenses.
D) prepaid expenses.
Answer: B
Q2) Under accrual basis accounting,revenue is recorded ONLY when cash is received.
A)True
B)False
Answer: False
Q3) Qwerty Ltd prepaid $3600 on 1 November 2016 for a one-year insurance premium.On 1 January 2017 of the next year (after 31 December adjustments),the Prepaid insurance account will have a debit balance of:
A) $3900
B) $3000
C) $3600
D) $3300
Answer: B
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Chapter 4: Completing the Accounting Cycle
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Q1) Which of the following statements is an accurate interpretation of the debt ratio?
A) A debt ratio above 1.00 is considered a good, safe ratio.
B) A debt ratio of 2.0 indicates a very strong ability to pay liabilities.
C) A debt ratio of 0.60 or lower is considered a high-risk ratio.
D) A debt ratio of 0.60 or lower is a good, safe ratio.
Q2) Under which of the following categories would Land appear?
A) Non-current liabilities
B) Non-current assets
C) Current liabilities
D) Current assets
Q3) Which of the following accounts will be closed by debiting the Income summary account?
A) Salary expense
B) Accounts receivable
C) Service revenue
D) Drawings
Q4) The post-closing trial balance is an optional step.
A)True
B)False
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Chapter 5: Retailing Operations
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Q1) Which of the following is subtracted from Gross profit to arrive at Net profit?
A) Cost of goods available for sale
B) Operating expenses
C) Cost of sales
D) Sales discounts and Sales returns and allowances
Q2) A firm sold inventory for $350 that cost $221.The entry to record the cost of the inventory sold would be a:
A) debit to Cost of sales and a credit to Inventory for $221.
B) debit to Cash and a credit to Sales for $350.
C) debit to Sales and a credit to Cash for $350.
D) debit to Inventory for $221 and a credit to Cost of sales for $221.
Q3) Net sales revenue is equal to Sales revenue less Cost of sales.
A)True
B)False
Q4) When a firm uses the perpetual inventory method,the inventory account should be constantly updated.
A)True
B)False
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Chapter 6: Retail Inventory
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Q1) James Company earned revenue of $700,000 and incurred cost of sales of $110,000.How much is the gross profit percentage?
A) 15.7%
B) 84.3%
C) 100%
D) 42.15%
Q2) Which inventory valuation model serves as a middle-of-the-road approach for taxes and net profit?
A) Last-in, first-out
B) First-in, first-out
C) Specific unit cost
D) Average cost
Q3) The materiality concept requires that a company should report enough information for outsiders to make wise decisions about the company.
A)True
B)False
Q4) Gross profit is Sales revenue divided by Cost of sales.
A)True
B)False
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Chapter 7: Accounting Information Systems
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Q1) Posting the entries in the sales journal to the accounts receivable subsidiary ledger should be done:
A) at the end of each month.
B) only at the end of the accounting period.
C) on a daily basis.
D) on a weekly basis.
Q2) The sales journal is used to record the sale of:
A) inventory on credit.
B) assets other than inventory for cash.
C) assets other than inventory on credit.
D) inventory for cash.
Q3) The set of programs that causes the computer to perform the work desired is called the:
A) software.
B) hardware.
C) network.
D) server.
Q4) The chart of accounts lists all the accounts and their account numbers. A)True
B)False
Page 9
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Chapter 8: Internal Control and Cash
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Q1) Regarding controls over cash receipts by mail,the bank deposit slip should be compared to the remittance advices by the accounting department.
A)True
B)False
Q2) The bank recorded a $2 000 deposit as $200.How would this information be included on the bank reconciliation?
A) An addition on the bank side
B) A deduction on the book side
C) A deduction on the bank side
D) An addition on the book side
Q3) In reconciling a bank statement,the bank balance is $1 800 and the chequebook balance is $1 205.Which of the following is the MOST probable reason why the bank balance is larger than the book balance?
A) The company erroneously recorded a cheque for an amount less than the actual amount.
B) A deposit in transit was made at the end of the month.
C) There are outstanding cheques.
D) The bank has deducted certain amounts for bank service charges.
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Chapter 9: Receivables
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Q1) Which of the following are the two methods of accounting for uncollectable receivables?
A) The allowance method and the liability method
B) The allowance method and the direct write-off method
C) The direct write-off method and the liability method
D) The asset method and the sales method
Q2) Which of the following is a disadvantage of selling on credit?
A) Some customers do not pay, creating an expense.
B) Profits are decreased by making sales to a more specific range of customers.
C) Sales can be made to fewer customers.
D) Prices must be reduced when selling on credit.
Q3) The acid-test ratio appears in the current assets section of the balance sheet.
A)True
B)False
Q4) Which of the following exists if the maker of a promissory bill fails to pay the bill on the due date?
A) A depreciated bill
B) A dishonoured bill
C) An amortised bill
D) A discounted bill
Page 11
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Chapter 10: Non-Current Assets: Property, plant and Equipment, and Intangibles
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Q1) Acer Investments plans to develop a shopping centre.In the first quarter,it spent the following amounts:
\[\begin{array} { | l | l | }
\hline \text { Purchase price of land } & \$ 17,000 \\
\hline \text { Surveys and legal fees } &600 \\
\hline \text { Land clearing } & 1100 \\
\hline \text { Fencing } &8000 \\
\hline \text { Install lighting and signage } & 1060 \\
\hline \end{array}\]
What amount should be recorded as the cost of land in the books of the company?
A) $19,760
B) $26,100
C) $18,700
D) $26,700
Q2) Goodwill is NOT amortised-but evaluated-each year for a decline in value.
A)True
B)False
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Chapter 11: Current Liabilities and Payroll
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Q1) On 31 October,General Stores signed a six-month,9% note payable to purchase inventory costing
$10 000.The note requires payment of principal and interest at maturity.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 $900
B) Short-term loan payable $10 000
C) Short-term loan payable $6 667
D) Short-term loan payable $3 333
Q2) Which of the following is included in the entry to record the employer's payroll taxes?
A) A debit to Payroll tax payable
B) A credit to Payroll tax payable
C) A credit to Income tax payable
D) A credit to Payroll tax expense
Q3) Which of the following is included in the entry to record warranty expense?
A) A credit to Inventory
B) A credit to Warranty expense
C) A debit to Warranty expense
D) A debit to Estimated warranty payable
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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 $1,174,000 of 12%,10-year debentures at 99 on 28 February 2017.The debentures pay interest on 28 February and 31 August.Assume that Blanding uses the straight-line method for amortisation.What is the journal entry to record the first interest payment on 31 August 2017? (Round to the nearest dollar.)
A) debit to Discount on debentures payable for $587
B) debit to Cash for $70,440
C) debit to Interest expense for $71,027
D) debit to Interest expense for $69,853
Q2) The main reason companies redeem debentures prior to their maturity date is to relieve the pressure of paying interest payments.
A)True B)False
Q3) Instalment payments for mortgages are normally paid once per year.
A)True B)False
Q4) Interest payable would normally be shown on the balance sheet in current liabilities. A)True B)False
Page 14
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Chapter 13: Partnerships
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Q1) Adam,Bill and Charlie are partners.The profit and rule sharing rule between them is 3:4:4,with Bill getting the most and Adam getting the least.The partnership incurs a net loss of $18,000.While closing the Income summary:
A) Charlie, capital will be debited for $6545.
B) Adam, capital will be debited for $6545.
C) Income summary will be credited for $6545.
D) Adam, capital will be credited for $6545.
Q2) When a partnership makes profit and the accounts are closed,the partner capital accounts will be credited with their designated shares of the profit.
A)True
B)False
Q3) Allan and Ralph are partners.Allan has a capital balance of $89,000 and Ralph has a capital balance of $73,000.Carol invested $61,000 to acquire an ownership interest of $50,000.Which of the following is true of the impact of the transaction on the balance sheet?
A) Assets will increase and equity will decrease.
B) Both assets and equity will increase.
C) Assets will increase and the equity will remain unchanged.
D) Asset increases and the equity will remain unchanged.
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Chapter 14: Companies: Formation and Shareholders
Equity
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Q1) When a company records the year-end closing entries,the first step is to close the Revenues to Retained earnings.
A)True
B)False
Q2) Normally,a company's book profit and taxable income should be the same.
A)True
B)False
Q3) 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
Q4) Shareholders of a company have unlimited liability for the company's debt.
A)True B)False
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Chapter 15: Companies: Capital Management and the Income Statement
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Q1) Companies are NOT allowed to combine the income statement and the statement of comprehensive income,but must show them as two separate reports.
A)True
B)False
Q2) A share buy-back requires a credit to the Ordinary share capital account.
A)True
B)False
Q3) Which of the following occurs when a company distributes a share dividend?
A) Shareholders' equity increases.
B) Shareholders' equity remains unchanged.
C) Total liabilities increase.
D) Total assets decrease.
Q4) Which of the following statements is TRUE?
A) Both a share dividend and a share split reduce retained earnings.
B) Neither a share dividend nor a share split will result in net gains or losses.
C) Both a share dividend and a share split increase the balance in the ordinary share account.
D) A share split increases the market value of the share.
Page 17
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Chapter 16: The Cash Flow Statement
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Q1) Thomas Ltd uses the direct method to prepare its cash flow statement.Refer to the following information reported for the year 2016:
Sales revenue,$41,000
Interest revenue,$700
Accounts receivable,beginning balance,$13,500
Accounts receivable,ending balance,$26,000
There were no amounts reported for Interest receivable. In the operating activities section of the cash flow statement,what amount will be shown for total cash receipts?
A) $13,500
B) $54,500
C) $29,200
D) $26,000
Q2) The Australian Accounting Standards require the cash flow statement to be prepared using either the direct method or the indirect method.
A)True
B)False
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Chapter 17: The Framework of Accounting
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Q1) AASB stands for Australian Accounting Standards Board.
A)True
B)False
Q2) Information is regarded as material if its omission or misstatement could influence the economic decisions made by users of financial reports.
A)True
B)False
Q3) According to the IASB Framework,accounting information should meet all of the following qualitative characteristics,except:
A) comparability.
B) relevance.
C) reliability.
D) reasonableness.
Q4) Accountants generally make no adjustments for changes in the value of the dollar.
A)True
B)False
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Chapter 18: Financial Statement Analysis
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Q1) Peartree Ltd provides the following extracts from its income statement for the year 2016:
\[\begin{array} { | l | l | }
\hline \text { Net sales } & \$ 560,000 \\
\hline \text { Cost of sales } & ( 200,000 ) \\
\hline \text { Gross profit } & \$ 360,000 \\
\hline
\end{array}\]
Calculate the gross profit percentage.
A) 64.29%
B) 100%
C) 35.71%
D) 45%
Q2) If an analyst wishes to see how selling and general expenses of a company have changed from one year to the next,using a horizontal analysis would be the best approach.
A)True
B)False
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Chapter 19: Introduction to Managerial Accounting and the Master Budget
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Q1) When the different business units at a company use differently structured reporting formats for their business unit budgets,it is more difficult for the company to consolidate the business unit data into a company-wide budget.
A)True
B)False
Q2) Transportation costs to ship products to customers are inventoriable product costs.
A)True
B)False
Q3) Which of the following statements is INCORRECT?
A) Managerial accounting is used to plan and control business operations.
B) Managerial accounting is used to report the company's financial position and results of operations to creditors and investors.
C) Managerial accounting is used to prepare budgets.
D) Managerial accounting is used to determine the cost of products and services.
Q4) Budgeting is a technique that is used to plan for future cash inflows and outflows.
A)True
B)False
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Chapter 20: Job Costing
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Q1) When job order costing is used in the service industry,the allocation of indirect costs is normally based on direct labour hours.
A)True
B)False
Q2) Which of the following would NOT be considered a manufacturing overhead cost?
A) Indirect labour
B) Direct labour cost
C) Plant electricity and gas costs
D) Depreciation of plant equipment
Q3) Dexter Accounting expects its accountants to work a total of 46,000 direct labour hours per year.Dexter's estimated total indirect costs are $598,000.Direct labour hours is the allocation base for indirect costs.What is the indirect cost allocation rate?
A) $13 per hour
B) $170 per hour
C) $130 per hour
D) $26 per hour
Q4) Target pricing is based on the cost to produce a product,plus a profit markup.
A)True
B)False
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Chapter 21: Cost-Volume-Profit Analysis
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Q1) Jame Company sells glass vases at a wholesale price of $3 per unit.The variable cost of manufacture is $1.75 per unit.The fixed costs are $13,500 per month.Jame sold 8600 units during this month.Calculate Jame's operating profit (loss)for this month.
A) ($2750)
B) ($13,500)
C) $2750
D) $15,050
Q2) The only difference between absorption costing and variable costing is the way that fixed manufacturing overhead costs are treated.
A)True
B)False
Q3) Mist Company sells two products-A and B.Mist predicts that it will sell 5500 units of A and 2000 units of B during the next period.The unit contribution margins are $3.75 and $5.00,respectively.What is the weighted-average unit contribution margin?
A) $5.00 per product
B) $4.08 per product
C) $4.38 per product
D) $3.75 per product
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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:
\[\begin{array} { | l | l | l | l | }
\hline & \text { Product A } & \text { Product B } & \text { Total } \\
\hline \text { Revenue } & \$ 15,000 & \$ 9300 & \$ 24,300 \\
\hline \text { Variable cost } & ( 7000 ) & ( 9800 ) & ( 16,800 ) \\
\hline \text { Fixed cost (allocated) } & \$ 2000 ) & \$ 2100 ) & ( 4100 ) \\
\hline \text { Operating income } & \$ 6000 & ( \$ 2600 ) & \$ 3400 \\
\hline
\end{array}\]
Assume that fixed costs of $2000 could be eliminated if product B was dropped.Assume furthermore 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) increase $500
B) increase $2000
C) increase $2500
D) increase $2100
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Chapter 23: Capital Investment Decisions and the Time
Value of Money
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Q1) Which of the following capital budgeting models is most likely to be used if a company's goal is to maximise their operating profit?
A) Net present value
B) Rate of return
C) Payback
D) Internal rate of return
Q2) Net present value is defined as the difference between the present value of the project's cash inflows and the investment's cost.
A)True
B)False
Q3) Most capital budgeting methods focus on cash flows rather than profit.
A)True
B)False
Q4) A post-audit is an analysis of an investment that is made after the investment is underway or completed.
A)True
B)False
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