Accounting for Decision Making Practice Exam
Course Introduction
Accounting for Decision Making introduces students to the vital role of accounting in the decision-making process within organizations. The course emphasizes the use of accounting information by managers for planning, controlling operations, and evaluating performance. Key topics include understanding financial statements, cost behavior and analysis, budgeting, and performance measurement. Through real-world case studies and practical exercises, students learn to interpret accounting data and apply it to strategic decisions, resource allocation, and problem-solving in various business contexts.
Recommended Textbook
Financial Accounting 15th Edition by Carl Warren
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Page 2
Chapter 1: Introduction to Accounting and Business
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Q1) Two factors that typically lead to ethical violations are relevance and timeliness of accounting information.
A)True
B)False
Answer: False
Q2) The asset created by a business when it makes a sale on account is termed
A)accounts payable
B)prepaid expense
C)unearned revenue
D)accounts receivable
Answer: D
Q3) Which of the following is not a characteristic of a corporation?
A)Corporations are organized as a separate legal taxable entity.
B)Ownership is divided into shares of stock.
C)Corporations experience an ease in obtaining large amounts of resources by issuing stock.
D)A corporation's resources are limited to its individual owners' resources.
Answer: D
Q4) What are the three sections of the statement of cash flows?
Answer: operating activities,investing activities,and financing activities
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Chapter 2: Analyzing Transactions
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Sample Questions
Q1) Which are the parts of the T account?
A)title, date, total
B)date, debit side, credit side
C)title, debit side, credit side
D)title, debit side, total
Answer: C
Q2) Proof that the dollar amount of the debits equals the dollar amount of the credits in the ledger means
A)all of the information from the journal was correctly transferred to the ledger
B)all accounts have their correct balances in the ledger
C)only the journal is accurate; the ledger may be incorrect
D)only that the debit dollar amounts equal the credit dollar amounts
Answer: D
Q3) A list of the accounts used by a business is called the A)journal
B)chart of accounts
C)T chart
D)debit listing
Answer: B
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Page 4
Chapter 3: The Adjusting Process
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Sample Questions
Q1) An attorney has earned half of a retainer fee that was received and recorded last month. No adjustment was recorded for the amount earned.
A)Assets and owner's equity overstated
B)Assets and owner's equity understated
C)Assets overstated and owner's equity understated
D)Assets understated and owner's equity overstated
E)Liabilities and owner's equity overstated
F)Liabilities and owner's equity understated
G)Liabilities overstated and owner's equity understated
H)Liabilities understated and owner's equity overstated
Answer: G
Q2) On March 1,a business paid $3,600 for a 12-month liability insurance policy.On April 1,the business entered into a two-year rental contract for equipment at a total cost of $18,000.Determine the following amounts:
(a) Insurance expense for the month of March
(b) Balance in prepaid insurance as of March 31
(c) Equipment rent expense for the month of April
(d) Balance in prepaid equipment rental as of April 30
Answer: 11ea8d32_2869_92af_b445_7b659102a594_TB6239_00
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Page 5
Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) A net loss appears on the end-of-period spreadsheet in the
A)Debit column of the Balance Sheet columns
B)Credit column of the Balance Sheet columns
C)Debit column of the Income Statement columns
D)Credit column of the Adjustments columns
Q2) The balances for the accounts listed below appear in the Adjusted Trial Balance columns of the end-of-period spreadsheet (work sheet).Indicate whether each balance would flow to (a)the income statement, (b)the statement of owner's equity,or (c)the balance sheet.
1.Accounts Payable
2.Dobson,Drawing
3.Depreciation Expense
4.Accumulated Depreciation
5.Fees Earned
6.Unearned Fees
7.Supplies
8.Supplies Expense
Q3) List and describe the purpose of the four closing entries.
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Chapter 5: Accounting Systems
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Sample Questions
Q1) Computerized accounting systems
A)are only used by medium- and large-sized companies
B)are generally not as accurate as manual systems
C)record and post transactions at the same time
D)must make use of special journals
Q2) Payment for supplies bought on account
A)Cash receipts journal
B)Cash payments journal
C)Revenue journal
D)Purchases journal
E)General journal
Q3) A control account is used to record the details of the individual subsidiary accounts.
A)True
B)False
Q4) Which of the following transactions is recorded in the revenue journal?
A)sale of excess office equipment for cash
B)rendering services for cash
C)rendering services on account
D)sale of excess office equipment on account
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Chapter 6: Accounting for Merchandising Businesses
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Sample Questions
Q1) When companies use a perpetual inventory system,the recording of the purchase of inventory will include a debit to Purchases.
A)True
B)False
Q2) When a merchandising business is compared to a service business,the financial statement that is not affected by that change is the statement of owner's equity.
A)True
B)False
Q3) Merchandise subject to terms 2/10,n/30,FOB shipping point,is sold on account to a customer for $25,000.What is the amount of the sales discount allowable?
A)$260
B)$500
C)$460
D)$150
Q4) In a multiple-step income statement,the dollar amount for income from operations is always the same as net income.
A)True
B)False
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Chapter 7: Inventories
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Sample Questions
Q1) If the cost of an item of inventory is $60 and the current replacement cost is $75,the amount included in inventory according to the lower of cost or market is
A)$15
B)$60
C)$75
D)$135
Q2) For the year ended December 31,Depot Max's cost of merchandise sold was $56,900.Inventory at the beginning of the year was $6,540.Ending inventory was $7,250.Compute Depot Max's inventory turnover for the year.
A)8.7
B)7.8
C)8.3
D)44.0
Q3) The specific identification inventory method should be used when the inventory consists of identical,low-cost units that are purchased and sold frequently.
A)True
B)False
Q4) List three different security measures taken to safeguard inventory.
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Chapter 8: Internal Control and Cash
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Sample Questions
Q1) The cash account in the company's ledger is a (n)
A)asset with a normal debit balance
B)asset with a normal credit balance
C)liability with a normal debit balance
D)liability with a normal credit balance
Q2) Minor Company had checks outstanding totaling $19,200 on its April bank reconciliation.In May,Minor Company issued checks totaling $64,900.The May bank statement shows that $47,600 in checks cleared the bank in May.A check of $300 from one of Minor Company's customers was also returned marked "NSF." The amount of outstanding checks on Minor Company's May bank reconciliation should be
A)$28,400
B)$66,800
C)$17,300
D)$36,500
Q3) The Sarbanes-Oxley Act requires that financial statements of all public companies report on management's conclusions about the effectiveness of the company's internal control procedures.
A)True
B)False
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Page 10
Chapter 9: Receivables
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Sample Questions
Q1) If the maker of a note fails to pay the debt on the due date,the note is said to be dishonored.
A)True
B)False
Q2) The direct write-off method records bad debt expense when an account is determined to be uncollectible.
A)True B)False
Q3) GAAP requires companies with a large amount of receivables to use the allowance method.
A)True
B)False
Q4) Two methods of accounting for uncollectible accounts are the
A)direct write-off method and the allowance method
B)allowance method and the accrual method
C)allowance method and the net realizable method
D)direct write-off method and the accrual method
Q5) Discuss the two methods for recording bad debt expense.What type of company uses each method?
Q6) List at least three indicators that a receivable may be uncollectible.
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Chapter 10: Long-Term Assets: Fixed and Intangible
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Sample Questions
Q1) When a property,plant,and equipment asset is sold for cash,any gain or loss on the asset sold should be recorded.
A)True
B)False
Q2) A tangible asset is one that lacks physical existence.
A)True
B)False
Q3) Determine the depreciation for the year of acquisition and for the following year of a fixed asset acquired on October 1 for $500,000 with an estimated life of five years,and residual value of $50,000,using (a)the double-declining-balance method and (b)the straight-line method.Assume a fiscal year ending December 31.
Q4) The transfer to expense of the cost of intangible assets attributed to the passage of time or decline in usefulness is called amortization.
A)True B)False
Q5) All property,plant,and equipment assets are depreciated over time. A)True B)False
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Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) Receiving payment prior to delivering goods or services causes a current liability to be incurred.
A)True
B)False
Q2) A pension plan that promises employees a fixed annual pension benefit,based on years of service and compensation,is called a (n)
A)defined contribution plan
B)defined benefit plan
C)unfunded plan
D)compensation plan
Q3) Chang Co.issued a $50,000,120-day,discounted note to Guarantee Bank.The discount rate is 6%.Assuming a 360-day year,the cash proceeds to Chang Co.are
A)$49,750
B)$47,000
C)$49,000
D)$51,000
Q4) A defined contribution plan promises employees a fixed annual pension benefit.
A)True B)False
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Chapter 12: Accounting for Partnerships and Limited Liability Companies
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Sample Questions
Q1) If the articles of partnership provide for annual salary allowances of $36,000 and $18,000 to X and Y,respectively,and net income is $30,000,X's share of net income is $20,000.
A)True
B)False
Q2) Which of the following is not a characteristic of a limited liability company?
A)unlimited life
B)limited legal liability
C)taxable
D)moderate ability to raise capital
Q3) If the partnership agreement does not otherwise state,partnership income is divided in proportion to the individual partner's capital balance.
A)True
B)False
Q4) What amount will be recorded to Sandra's capital account?
A)$18,000
B)$7,500
C)$25,500
D)$10,500
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Chapter 13: Corporations: Organization, stock Transactions, and Dividends
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Q1) Sneed Corporation issues 10,000 shares of $50 par preferred stock for cash at $75 per share.The entry to record the transaction will consist of a debit to Cash for $750,000 and a credit or credits to
A)Preferred Stock for $750,000
B)Preferred Stock for $500,000 and Paid-In Capital in Excess of Par-Preferred Stock for $250,000
C)Preferred Stock for $500,000 and Retained Earnings for $250,000
D)Paid-In Capital from Preferred Stock for $750,000
Q2) The cumulative effect of the declaration and payment of a cash dividend on a company's financial statements is to
A)decrease total liabilities and stockholders' equity
B)increase total expenses and total liabilities
C)increase total assets and stockholders' equity
D)decrease total assets and stockholders' equity
Q3) The main source of paid-in capital is from issuing stock.
A)True
B)False
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Page 15
Chapter 14: Long-Term Liabilities: Bonds and Notes
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Sample Questions
Q1) Hayden Corporation issues 1,000,10-year,8%,$2,000 bonds dated January 1 at 92.The journal entry to record the issuance will show a
A)credit to Discount on Bonds Payable for $160,000
B)debit to Cash for $2,000,000
C)credit to Bonds Payable for $2,000,000
D)credit to Cash for $1,840,000
Q2) The face value of a term bond is payable at a single specific date in the future. A)True B)False
Q3) One potential advantage of financing corporations through the use of bonds rather than common stock is
A)the interest on bonds must be paid when due
B)the corporation must pay the bonds at maturity
C)the interest expense is deductible for tax purposes by the corporation
D)a higher earnings per share is guaranteed for existing common shareholders
Q4) (a) Prepare the journal entry to issue $100,000 bonds that sold for $94,000. (b) Prepare the journal entry to issue $100,000 bonds that sold for $104,000.
Q5) (a) Prepare the journal entry to issue $500,000 bonds that sold for $490,000. (b) Prepare the journal entry to issue $500,000 bonds that sold for $515,000.
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Chapter 15: Investments and Fair Value Accounting
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Q1) Investments in bonds that management intends to hold to maturity are called trading securities.
A)True
B)False
Q2) Edison Corporation paid a dividend of $10 per share on its $100 par preferred stock and $4 per share on its $20 par common stock.The market value of the common stock is $80 per share.Edison's dividend yield is
A)5%
B)10%
C)25%
D)20%
Q3) When long-term investments in bonds are sold before their maturity date,the seller deducts any accrued interest since the last interest payment date from the selling price. A)True
B)False
Q4) Discuss why companies invest cash in short-term temporary investments vs.long-term investments.
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Chapter 16: Statement of Cash Flows
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Sample Questions
Q1) Cash flows from investing activities,as part of the statement of cash flows,would include any payments for the purchase of treasury stock.
A)True
B)False
Q2) The statement of cash flows is not one of the basic financial statements.
A)True
B)False
Q3) If 800 shares of $40 par common stock are sold for $43,000,the $43,000 would be reported in the Cash flows from financing activities section of the statement of cash flows.
A)True
B)False
Q4) Free cash flow is the measure of operating cash flow available for corporate purposes after providing sufficient fixed asset additions to maintain current productive capacity.
A)True
B)False
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Chapter 17: Financial Statement Analysis
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Q1) Measures the risk that interest payments will not be made if earnings decrease
A)Solvency
B)Leverage
C)Times interest earned
D)Horizontal analysis
E)Vertical analysis
F)Common-sized financial statements
G)Current position analysis
H)Profitability analysis
Q2) When the return on total assets is greater than the return on common stockholders' equity,the management of the company has effectively used leverage.
A)True
B)False
Q3) When a corporation discontinues a segment of its operations at a loss,the loss should be reported as a separate item after income from continuing operations on the income statement.
A)True
B)False
Q4) Define solvency and profitability.How are they alike?
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