Accounting for Decision Making
Textbook Exam Questions
Course Introduction
Accounting for Decision Making is designed to equip students with the fundamental accounting concepts and analytical tools necessary for effective managerial decision making. The course emphasizes the interpretation and use of accounting information in various business scenarios, focusing on topics such as cost behavior, budgeting, performance evaluation, and financial statement analysis. Through case studies and practical applications, students learn how to utilize accounting data to plan, control, and make informed operational and strategic decisions within organizations. This course is essential for anyone interested in understanding how accounting supports management functions and drives business success.
Recommended Textbook
Horngrens Accounting The Financial Chapters 12th Edition by Tracie L. Miller-Nobles
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Chapter 1: Accounting and the Business Environment
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Q1) An entity refers to one business which includes its owners.
A)True
B)False Answer: False
Q2) A creditor is any person who has an ownership interest in a business.
A)True
B)False Answer: False
Q3) The owner's claim to the assets of the business is called ________.
A)return on assets
B)expenses
C)equity
D)debt Answer: C
Q4) Financial accounting focuses on information for decision makers outside of the business,such as creditors and taxing authorities.
A)True
B)False Answer: True
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Chapter 2: Recording Business Transactions
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Q1) A chart of accounts is a detailed record of the changes in a particular asset,liability,or equity account during a specified period.
A)True
B)False
Answer: False
Q2) A business pays $800 cash for office supplies.Which of the following accounts is credited?
A)Cash
B)Accounts Payable
C)Office Supplies
D)Office Supplies Expense
Answer: A
Q3) Which of the following sequences states the order in which accounts are listed on a trial balance?
A)Equity Assets Liabilities
B)Liabilities Assets Equity
C)Assets Equity Liabilities
D)Assets Liabilities Equity
Answer: D
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) The accounting period used for the annual financial statements is called the fiscal year.
A)True
B)False
Answer: True
Q2) Financial statements are prepared from the balances in a(n)________.
A)general journal
B)chart of accounts
C)unadjusted trial balance
D)adjusted trial balance
Answer: D
Q3) What type of account is Prepaid Rent,and what is its normal balance?
A)It is an expense account and has a debit balance.
B)It is a liability account and has a credit balance.
C)It is a revenue account and has a credit balance.
D)It is an asset account and has a debit balance.
Answer: D
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) The entries that transfer the revenue,expense,and Owner,Withdrawals balances to the Owner,Capital account to prepare the company's books for the next period are called ________ entries.
A)closing
B)opening
C)adjusting
D)end of period
Q2) Brownstone Company has a current ratio of 4.00.This indicates that the company has $4 in ________.
A)current liabilities for every $1 of current assets
B)total assets for every $1 of current liabilities
C)current assets for every $1 of current liabilities
D)total assets for every $1 of current assets
Q3) The Martinez,Withdrawals account is a permanent account.
A)True
B)False
Q4) The Supplies Expense account is a temporary account.
A)True
B)False
Q5) Why are temporary accounts not included in the post-closing trial balance?
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Chapter 5: Merchandising Operations
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Q1) Forever Jewelers uses the gross method and a perpetual inventory system.On April 2,Forever sold merchandise with a cost of $1,900 for $6,300 to a customer on account with terms of 1/15,n/30.Which of the following would be included in the journal entry to record the cash receipt on April 30?
A)Credit to Cash for $6,237
B)Credit to Sales Discounts for $63
C)Debit to Cash for $6,300
D)Debit to Sales Discounts for $63
Q2) Journalize the following transactions for a merchandiser that uses the gross method for recording sales and a perpetual inventory system. On January 8,inventory was sold for $7,000 on account.Credit terms were 2/15,n/30 (cost $5,500).On January 31,cash was received in full settlement of the January 8 sale.Omit explanations.
Q3) A merchandiser adjusts and closes accounts differently than a service entity does. A)True
B)False
Q4) Prepare the journal entry to close the revenue and other income accounts.Omit explanation.
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Chapter 6: Merchandise Inventory
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Q1) Which of the following inventory costing methods yields the lowest net income during a period of rising inventory costs?
A)specific identification
B)weighted-average
C)last-in,first-out
D)first-in,first-out
Q2) An inventory error cancels out after two periods.
A)True
B)False
Q3) Inventory turnover measures ________.
A)the days' sales in inventory ratio
B)how rapidly merchandise inventory is purchased
C)how rapidly merchandise inventory is sold
D)the time period for inventory to become obsolete
Q4) The consistency principle states that a business should use the same accounting methods and procedures from period to period.
A)True
B)False
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Chapter 7: Accounting Information Systems
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Sample Questions
Q1) Which of the following is TRUE of a network?
A)It connects a computer's hardware to the software.
B)It does not link computers.
C)It is the same as software.
D)It allows different computers to share the same information.
Q2) The sale of merchandise inventory for cash is recorded in the ________.
A)general journal
B)cash receipts journal
C)sales journal
D)accounts receivable journal
Q3) When using Quickbooks,the software automatically transfers the amounts from the general ledger to Excel.The accountant can then prepare the financial statements.
A)True
B)False
Q4) Adjusting entries are recorded in the ________.
A)cash payments journal
B)purchases journal
C)cash receipts journal
D)general journal
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Chapter 8: Internal Control and Cash
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Q1) An information system is one of the five components by which a company can achieve its internal control objectives.
A)True
B)False
Q2) Public companies ________.
A)must issue an internal control report which states that the outside auditor is responsible for the adequacy of internal controls
B)are audited by accounting firms that do not also provide certain consulting services to the public company
C)are required by the Financial Accounting Standards Board to maintain a system of internal controls
D)are overseen by the Public Company Accounting Oversight Board
Q3) Atlas Service Company decides to increase the amount of the petty cash fund from $350 to $800.A journal entry must be made to debit the Cash account and credit the Petty Cash account for $450.
A)True B)False
Q4) Fifth National Bank requires mandatory vacations and job rotation.
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Chapter 9: Receivables
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Sample Questions
Q1) The accounts receivable turnover ratio is computed by dividing net credit sales by ending net accounts receivable.
A)True
B)False
Q2) At the beginning of 2019,Patriots Company has the following account balances: Accounts Receivable $40,000 (Debit)
Allowance for Bad Debts $7000 (Credit)
Bad Debts Expense $0
During the year,credit sales amounted to $810,000.Cash collected on credit sales amounted to $790,000,and $17,000 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 2.5%.The amount of bad debts expense for 2019 is
A)$20,250
B)$41,000
C)$17,000
D)$10,250
Q3) Define net realizable value.How is net realizable value affected when a receivable is written off under the allowance method?
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Page 11
Chapter 10: Plant Assets, natural Resources, and Intangibles
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Q1) City Auto Parts recently traded in store fixtures.The exchange had commercial substance.The old fixtures had a cost of $52,000 and accumulated depreciation of $16,000.City paid $110,000 for the new store fixtures.These new fixtures had a market value of $113,000.There is a loss of $33,000 on this exchange.
A)True
B)False
Q2) Exchanges of plant assets that have commercial substance require any gain or loss on the transaction to be recognized.
A)True
B)False
Q3) A coal mine cost $1,009,000 and is estimated to hold 57,000 tons of coal.There is no residual value.During the first year of operations,12,000 tons are extracted and sold.Calculate depletion per unit.(Round your answer to the nearest cent. )
A)$8.85
B)$4.43
C)$17.70
D)$13.27
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Chapter 11: Current Liabilities and Payroll
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Q1) Net pay is the total amount of compensation that an employee takes home after the deductions are made.
A)True
B)False
Q2) A contingency was evaluated at year-end and considered to have a reasonable possibility of becoming an actual liability.If this was not reported on the balance sheet or in the notes to the financial statements,it could be considered a violation of generally accepted accounting principles.
A)True
B)False
Q3) The matching principle requires businesses to record Warranty Expense when the warranty costs are incurred.
A)True
B)False
Q4) Warranty Expense is shown on the income statement at the estimated amount.
A)True
B)False
Q5) If the likelihood of a future event is remote,how should the company report the contingency?
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Chapter 12: Partnerships
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Q1) Mary,Ann,and Beth are partners.Their capital balances are,$23,000;$41,000;and $30,000,respectively.As per the partnership agreement,Mary receives a profit share of 2/9;Ann has 4/9;and Beth has 3/9.Beth withdraws from the partnership by receiving $23,000.What will be the impact of this transaction on the journal entries?
A)Cash will be debited for $30,000.
B)Mary,Capital will be debited for $7000.
C)Ann,Capital will be credited for $7000.
D)Beth,Capital will be debited for $30,000.
Q2) How is the accounting equation affected when a partner withdraws cash?
A)Both equity and assets decrease;liabilities are not affected.
B)Assets increase and equity decreases;liabilities are not affected.
C)Both assets and liabilities decrease;equity is not affected.
D)Liabilities decrease and assets increase;equity is not affected.
Q3) In a ________,each partner is not personally liable for the malpractice committed by another partner.
A)general partnership
B)limited liability partnership
C)limited partnership
D)sole proprietorship
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Page 14
Chapter 13: Corporations
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Q1) Special items and earnings per share are reported on the income statement after income from continuing operations.
A)True
B)False
Q2) Nice International originally issued 105,000 shares of common stock at a price of $22 per share.A year later,it distributed a 12% stock dividend to shareholders.At the time of the stock dividend,the share price had increased to $27 per share.Which of the following statements is TRUE?
A)Nice will record sales revenues of $277,200.
B)Nice will record a loss of $63,000.
C)Nice will record a gain of $63,000.
D)Nice will record neither a gain nor a loss.
Q3) Earnings per share for income from continuing operations must be reported on the face of the income statement.
A)True B)False
Q4) Paid-in capital and retained earnings are internally generated equity.
A)True
B)False
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Chapter 14: Long-Term Liabilities
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Q1) The balance in the Bonds Payable account is a credit of $67,000.The balance in the Discount on Bonds Payable account is a debit of $3350.What is the bond's carrying amount?
A)$3350
B)$70,350
C)$67,000
D)$63,650
Q2) The difference between mortgages payable and notes payable is that notes payable are always secured by specific assets.
A)True
B)False
Q3) Landings Glassware Company issues $1,150,000 of 15%,10-year bonds at 95 on February 28,2019.The bonds pay interest on February 28 and August 31.The journal entry to record the issuance includes a ________.
A)debit to Cash for $1,150,000
B)credit to Bonds Payable for $1,092,500
C)credit to Discount on Bonds Payable for $57,500
D)debit to Cash for $1,092,500
Q4) List three disadvantages of borrowing.
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Chapter 15: Investments
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Q1) On May 18,2018,Fran Co.invested excess cash of $50,000 by purchasing bonds of Hans Inc.At year-end,December 31,2018,the market price of the bonds was $52,000.The investment is categorized as a trading debt investment.Journalize the adjusting entry needed at December 31,2018.Omit explanation.
Q2) Unrealized gains or losses on available-for-sale debt investments occur when a company adjusts the investment to ________.
A)fair value but has not yet disposed of the asset
B)fair value when an asset is disposed
C)average value but has not yet disposed of the asset
D)average value when an asset is disposed
Q3) Under the equity method,the investor ________.
A)must debit the Equity Investments account when a dividend is received
B)must record its share of the investee's net income
C)must use the LIFO method for tax purposes
D)debits the Revenue from Investments when the investee reports income
Q4) Equity investments with no significant influence must be adjusted at the end of the year and reported at fair value.
A)True
B)False
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Chapter 16: The Statement of Cash Flows
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Q1) Buying property,plant,and equipment for cash is considered a cash outflow for the financing activities section of the statement of cash flows.
A)True
B)False
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 third section presented on the statement of cash flows is the non-cash operating activities section.
A)True
B)False
Q4) In practice,most companies face complex situations.In these cases,a spreadsheet can help in preparing the statement of cash flows.
A)True
B)False
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Chapter 17: Financial Statement Analysis
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Q1) The price/earnings ratio shows the market price of $1 of earnings.
A)True
B)False
Q2) In a vertical analysis of the balance sheet,each line item is shown as a percentage of stockholders' equity.
A)True
B)False
Q3) Ratio analysis is used most effectively to measure a company against other companies in different industries.
A)True
B)False
Q4) The income statement is also known as the ________.
A)statement of operations
B)statement of cash flows
C)statement of stockholders' equity
D)statement of financial position
Q5) The horizontal analysis of the balance sheet shows the changes in net sales and net income.
A)True
B)False
Page 19
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