Accounting for Decision Making
Textbook Exam Questions
Course Introduction
Accounting for Decision Making introduces students to the fundamental principles and practices of accounting with a focus on how financial information supports managerial decision-making. The course covers the interpretation and analysis of financial statements, budgeting, cost behavior, and performance measurement, equipping students with the skills to evaluate business operations and make informed financial decisions. Emphasis is placed on the use of accounting data for planning, controlling, and evaluating business activities, enabling future managers and business leaders to apply accounting insights in real-world scenarios.
Recommended Textbook
Financial and Managerial Accounting 9th Edition by Belverd E. Needles
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Page 2
Chapter 1: Uses of Accounting Information and the Financial Statements
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Sample Questions
Q1) Which of the following transactions involves an exchange of value?
A) Accumulation of interest
B) Sale of services
C) Flood loss
D) Wear and tear on equipment
Answer: B
Q2) Independence is the avoidance of all relationships that impair or appear to impair the objectivity of the accountant.
A)True
B)False
Answer: True
Q3) Creditors are those who lend money to others or deliver goods and services before being paid.
A)True
B)False
Answer: True
Q4) Stockholders' equity equals contributed capital plus retained earnings.
A)True
B)False Answer: True
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Chapter 2: Analyzing Business Transactions
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Sample Questions
Q1) Which of the following accounts is decreased with a credit?
A) Advertising Fees Earned
B) Insurance Expense
C) Common Stock
D) Unearned Revenue
Answer: B
Q2) Which of the following accounts will eventually be followed with an inflow of cash?
A) Prepaid Insurance
B) Unearned Revenue
C) Dividends
D) Accounts Receivable
Answer: D
Q3) The Unearned Fees account is classified as a(n)
A) liability.
B) revenue.
C) asset.
D) expense.
Answer: A
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Chapter 3: Measuring Business Income
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Sample Questions
Q1) Accounting periods should be of equal length to facilitate comparisons between periods.
A)True
B)False
Answer: True
Q2) Prepaid Rent was $400 at the end of May and $650 at the end of June.Rent Expense for June was $260.How much cash was paid for rent during June?
A) $310
B) $410
C) $510
D) $610
Answer: C
Q3) Revenue is produced when accounts receivable are collected.
A)True
B)False
Answer: False
Q4) A cash payment that reduces a liability does not result in an expense.
A)True
B)False
Answer: True
Page 5
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Chapter 3: Supplement - Closing Entries and the Work Sheet
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Sample Questions
Q1) A work sheet is more useful for a small company than for a large one.
A)True
B)False
Q2) The work sheet is a type of accountant's working paper.
A)True
B)False
Q3) An important use of the work sheet is as an aid in the preparation of financial statements.
A)True
B)False
Q4) An amount for Retained Earnings would not appear in which of the following work sheet columns?
A) Trial Balance
B) Income Statement
C) Balance Sheet
D) Adjusted Trial Balance
Q5) On a work sheet,the balance of Retained Earnings is its ending amount for the period.
A)True
B)False
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Chapter 4: Financial Reporting and Analysis
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Sample Questions
Q1) The lower-of-cost-or-market method of accounting for inventories follows the convention of
A) full disclosure.
B) materiality.
C) conservatism.
D) cost-benefit.
Q2) It is possible for an asset to be a current asset even though the expected conversion of that asset into cash is to be longer than one year.
A)True
B)False
Q3) Patents would appear in which section of the balance sheet?
A) Investments
B) Property, plant, and equipment
C) Current assets
D) Intangible assets
Q4) The two parts of a corporation's stockholders' equity section are contributed capital and retained earnings.
A)True
B)False
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Chapter 5: The Operating Cycle and Merchandising Operations
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Sample Questions
Q1) The entry to record a $750 sale with terms of 2/10,n/30 would include a(n)
A) decrease to Accounts Receivable for $750.
B) increase to Sales for $750.
C) increase to Sales Discounts for $15.
D) decrease to Sales for $735.
Q2) Using the following information,calculate for 2010 (a)net sales,(b)cost of goods sold,(c)gross margin,and (d)net income.
\(\begin{array}{lr}
\text { Freight-In } & \$ 11,400 \\
\text { Merchandise Inventory, December 31, } 2009 & 130,000 \\
\text { Sales } & 320,000\\
\text { Purchases Returns and Allowances } & 1,600 \\
\text { Advertising Expense } & 18,000 \\
\text { Purchases } & 140,000 \\
\text { Merchandise Inventory, December 31, } 2010 & 110,000 \\
\text { Sales Returns and Allowances } & 11,000 \\
\text { General and Administrative Expenses } & 114,000
\end{array}\)
Q3) Why is the separation of duties an important control activity in a good system of internal control?
Page 8
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Chapter 6: Inventories
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Sample Questions
Q1) When applying the lower-of-cost-or-market rule to inventory valuation,market generally means
A) original cost, less physical deterioration.
B) replacement cost.
C) original cost.
D) resale value.
Q2) Which of the following inventory methods when used for income tax purposes must also be used for reporting purposes?
A) Specific identification
B) LIFO
C) FIFO
D) Average-cost
Q3) What is a LIFO liquidation,and what is its effect on income before income taxes?
Q4) The lower the value assigned to ending inventory,the lower the gross margin.
A)True
B)False
Q5) If prices were to never change,there would be no need for alternative inventory methods.
A)True
B)False
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Chapter 7: Cash and Receivables
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Sample Questions
Q1) The balance of Accounts Receivable,net of the allowance account,is $35,000 before the write-off of a $2,800 account.What is the Accounts Receivable balance,net of the allowance account,after the write-off?
A) $35,000
B) $32,200
C) $2,800
D) $37,800
Q2) A company issues a check for $362 but records it as $326.On the bank reconciliation,the $36 error should be
A) deducted from the balance per books.
B) added to the balance per bank.
C) deducted from the balance per bank.
D) added to the balance per books.
Q3) A dishonored note means the payee's entry includes a
A) credit to Accounts Receivable.
B) debit to Interest Expense.
C) debit to Notes Receivable.
D) credit to Interest Income.
Q4) What is a compensating balance? By whom is it required?
Q5) On a balance sheet,what items normally are included in Cash?
Page 10
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Chapter 8: Current Liabilities and Fair Value Accounting
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Sample Questions
Q1) Wages are compensation of employees at a yearly or monthly rate.
A)True
B)False
Q2) A liability rarely is established for product warranties because of uncertainty as to the amount of the liability.
A)True
B)False
Q3) When accounting for property taxes,which of the following accounts normally would not be credited?
A) Prepaid Property Taxes
B) Cash
C) Estimated Property Taxes Payable
D) Property Taxes Expense
Q4) Contrast the accounting problems presented by definitely determinable liabilities and those associated with estimated liabilities.
Q5) At the time a company signs a contract to pay an employee a certain salary in the future,it records a liability.
A)True
B)False
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Chapter 9: Long Term Assets
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Sample Questions
Q1) Goodwill equals the excess paid for a business over the book value of the net assets purchased.
A)True
B)False
Q2) The depletion calculation is similar to which of the following depreciation methods?
A) Double-declining-balance
B) Straight-line
C) Group
D) Production
Q3) A building was purchased for $500,000.It has accumulated depreciation of $80,000 and had a residual value of $100,000.Assuming the use of straight-line depreciation,its estimated useful life must have been
A) 15 years.
B) ten years.
C) five years.
D) impossible to determine from the facts given.
Q4) The production method is an accelerated method of depreciation.
A)True
B)False
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Chapter 10: Long-Term Liabilities
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Sample Questions
Q1) Under a defined benefit pension plan,
A) actuarial computations are unnecessary.
B) accounting for annual pension expense is simple.
C) retirement payments are based on the amount accumulated in the pension fund.
D) the employer guarantees the employees certain benefits upon retirement.
Q2) Crowley Corporation purchased a building on January 2 by signing a long-term $600,000 mortgage with monthly payments of $5,500.The mortgage carries an interest rate of 10 percent.The entry to record the mortgage will include a
A) debit to the Mortgage Payable account for $600,000.
B) credit to the Cash account for $600,000.
C) debit to the Cash account for $600,000.
D) credit to the Mortgage Payable account for $600,000.
Q3) The call feature of bonds is useful if a company wants to retire a bond issue.
A)True
B)False
Q4) Which of the following qualifies as a capital lease?
A) Four-year lease on a company vehicle
B) Three-year lease on a computer with an option to renew for one more year
C) Five-year lease on a machine that has a five-year useful life
D) Monthly lease on office space that can be canceled with 30 days' notice
Page 13
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Chapter 11: Contributed Capital
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Sample Questions
Q1) Use the following information to answer the question below. The following accounts appear in the ledger of Sayre Corporation on December 31,20xx: \(\begin{array}{lr}
\text { Preferred Stock } & \$ 30,000 \\
\text { Common Stock } & 56,000 \\
\text { Additional Paid-in Capital, Preferred } & 7,000 \\
\text { Additional Paid-in Capital, Common } & 18,000 \\
\text { Retained Earnings } & 40,000 \end{array}\)
A balance sheet prepared on December 31,20xx,would report total stockholders' equity of
A) $77,000.
B) $84,000.
C) $102,000.
D) $142,000.
Q2) Define outstanding stock.
Q3) No entry is required on the date of record for a cash dividend.
A)True B)False
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Page 14
Chapter 12: Investments
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Sample Questions
Q1) Which of the following categories of investments can be both debt and equity securities?
A) Available-for-sale securities
B) Trading securities
C) Held-to-maturity securities
D) Both available-for-sale and trading securities
Q2) When the equity method is used to account for an investment in stock,the investor will report its share of the investee's annual earnings as income regardless of how much the investee distributes in the form of dividends.
A)True
B)False
Q3) The year-end adjusting entry to reflect an increase in the value of trading securities includes a
A) debit to Unrealized Gain on Investments.
B) debit to Short-Term Investments.
C) debit to Allowance to Adjust Short-Term Investments to Market.
D) credit to Realized Gain on Investments.
Q4) When are eliminating entries made,where are they entered,and why are they needed?
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Chapter 13: The Corporate Income Statement and the Statement of Stockholders Equity
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Sample Questions
Q1) A loss due to discontinued operations should be reported on the income statement
A) before extraordinary items.
B) before income taxes expense.
C) after net income.
D) after extraordinary items.
Q2) The preparation of a statement of stockholders' equity makes which other financial statement unnecessary?
A) Income statement
B) Statement of cash flows
C) Statement of retained earnings
D) Balance sheet
Q3) What issues must be considered when determining whether or not an uninsured loss from tornado destruction should be treated as an extraordinary item?
Q4) Both restructurings and write-downs reduce current operating income.
A)True
B)False
Q5) Par value or stated value is arbitrarily set when stock is authorized. A)True B)False
Page 16
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Chapter 14: The Statement of Cash Flows
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Sample Questions
Q1) Interest expense is one item added to net income as per the income statement to arrive at net cash flows from operating activities.
A)True
B)False
Q2) Royer Corporation engaged in this transaction: Issued long-term note for plant assets.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.
A) Schedule of noncash investing and financing transactions
B) Financing activities section
C) Operating activities section
D) Investing activities section
Q3) For 20xx,SCJ Corporation had average total assets of $520,000,sales of $450,000,net income of $50,000,net cash flows from operating activities of $75,000,dividend payments of $25,000,purchases of plant assets of $60,000,and sales of plant assets of $55,000.Using this information,compute (a)cash flow yield,(b)cash flows to sales,(c)cash flows to assets,and (d)free cash flow.Round amounts to one decimal place.
Q4) On the lines below,provide the components for the calculation of free cash flow.
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Chapter 15: The Changing Business Environment - a Managers Perspective
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Sample Questions
Q1) The objectivity standards of management accountants state that management accountants must communicate information fairly and objectively.This means essentially that accountants must perform each task
A) as professionals, possessing the degree of skill of those management accountants who held the position before them.
B) to provide relevant information, both positive and negative, to the recipients of their reports.
C) in conformity with generally accepted accounting principles.
D) to the satisfaction of government regulators.
Q2) Comparing actual performance with expected performance levels is an evaluation activity.
A)True
B)False
Q3) Hiring a janitorial service firm rather than employing full-time employees is an example of outsourcing.
A)True
B)False
Q4) Identify three uses of the costs of quality information.
Q5) List three characteristics of a JIT operating environment.
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Chapter 16: Cost Concepts and Cost Allocation
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Sample Questions
Q1) Total manufacturing costs increase which of the following accounts?
A) Cost of Goods Sold
B) Work in Process Inventory
C) Finished Goods Inventory
D) Overhead
Q2) Depreciation expense could be
A) a period cost.
B) a product cost.
C) a fixed cost.
D) all of these.
Q3) Indirect costs incurred are charged directly to the Work in Process Inventory account.
A)True
B)False
Q4) Some period costs can be found in inventory accounts on the balance sheet.
A)True
B)False
Q5) Period cost and product cost are synonymous terms.
A)True
B)False
Page 19
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Chapter 17: Costing Systems- Job Order Costing
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Sample Questions
Q1) Applied overhead exceeds actual overhead when the A) Overhead account has a credit balance.
B) journal entry to account for the difference involves a debit to Cost of Goods Sold.
C) Overhead account has a debit balance.
D) company has overspent in the overhead cost area.
Q2) Which of the following accurately describes a difference between job order and process costing systems?
A) In job order costing systems, overhead costs are treated as product costs, whereas in process costing systems, overhead costs are treated as period costs.
B) Job order costing systems do not need to assign costs to production, whereas process costing systems do.
C) In job order costing systems, costs are traced to products, whereas in process costing systems, costs are traced to processes, departments and work cells.
D) Since costs are assigned to products in a job order costing system, selling costs are treated as product costs in the job order costing system, whereas they are treated as period costs in process costing systems.
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Chapter 18: Costing Systems- Process Costing
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Q1) Use the following information to perform the calculations requested below,assuming that the FIFO costing approach to a process costing system is being used.
Beginning work in process inventory: 16,000 units,100 percent complete as to direct materials,85 percent complete as to conversion costs
Ending work in process inventory: 36,000 units,100 percent complete as to direct materials,70 percent complete as to conversion costs
Units started during the month: 59,000
a. Calculate units to be accounted for during the month.
b. Calculate units started and completed during the month.
c. Calculate equivalent units for direct materials.
d. Calculate equivalent units for conversion costs.
Q2) Regardless of the cost approach used,in a process costing system,costs attached to units in beginning inventory are included in the computation of costs per equivalent unit.
A)True
B)False
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Chapter 19: Value-Based Systems- Abm and Lean
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Q1) The just-in-time operating environment typically is characterized by the positioning of all similar machines together on the factory floor.
A)True
B)False
Q2) Define activity-based costing.Explain why this approach to cost assignments is superior to the traditional method of using a plantwide overhead cost rate.Will activity-based costing always result in lower product costs? Defend your answer.
Q3) Product throughput time refers to the amount of time that a product spends in a production cell.
A)True
B)False
Q4) Last year,Amanda Jones opened a candy store in a busy shopping center.She spent a lot on advertising and attracted many customers into the store,but very few customers made purchases and sales were declining.Amanda paid attention to questions and requests made by customers and determined that they often requested items that were within the scope of her business but that she did not carry.When she offered to order items for her customers,delivery was usually too late and,again,sales were lost.What measures should Amanda take to improve her business?
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Page 22
Chapter 20: Cost Behavior Analysis
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Sample Questions
Q1) An insurance company pays its employees a commission of 6 percent on each sale.What is the proper classification of the cost of sales commissions?
A) Constant cost
B) Variable cost
C) Mixed cost
D) Fixed cost
Q2) Which of the following is not an assumption underlying cost-volume-profit analysis?
A) Product sales mix will not change during the period.
B) The breakeven point will be reached and surpassed during the period.
C) Cost behavior can be determined accurately.
D) Productivity is constant within the relevant range.
Q3) The equation that will provide the breakeven point in units (SP = selling price)is
A) BE units = (SP - VC) ÷ FC per unit.
B) VC per unit + FC = SP per unit * BE units.
C) BE units = FC ÷ CM per unit.
D) SP per unit - VC per unit = FC ÷ BE units.
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Chapter 21: The Budgeting Process
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Q1) Preparation of a production budget requires knowledge of the sales target in sales dollars.
A)True
B)False
Q2) Budgets
A) should contain both revenues and expenses.
B) contain as much information as possible.
C) are presented in dollars only; nondollar data should be excluded.
D) are synonymous with managing an organization.
Q3) Depreciation is included in the cash budget.
A)True
B)False
Q4) The Budget Committee oversees each stage in the preparation of a master budget.
A)True
B)False
Q5) Zero-based budgeting requires the preparation of budget from scratch.
A)True
B)False
Q6) Describe three benefits budgeting provides to an organization's success.
Page 24
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Chapter 22: Performance Management and Evaluation
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Sample Questions
Q1) A manager can improve EVA by
A) increasing assets and decreasing costs.
B) increasing sales and assets.
C) increasing cost of capital and assets.
D) decreasing assets and lowering cost of capital.
Q2) It is not necessary for managers to fully understand the causal relationship between their actions and the organization's overall performance to get results.
A)True
B)False
Q3) For purposes of computing EVA,the minimum desired rate or return on an investment is known as
A) ROI.
B) cost of capital.
C) residual income.
D) profit margin.
Q4) The causal links between an organization's goals,objectives,measures,performance targets need not be apparent.
A)True
B)False
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Chapter 23: Standard Costing and Variance Analysis
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Q1) Service organizations do not develop standards for A) any service costs.
B) overhead.
C) direct materials.
D) labor.
Q2) Using the following information,compute the standard unit cost of a 20 pound bag of dog food: \(\begin{array}{ll}
\text { Direct materials quantity standard } & 20 \text { pounds per unit } \\
\text { Direct materials price standard } & \$ 0.02 \text { per pound } \\
\text { Direct labor time standard } & 0.1 \text { hour per unit } \\
\text { Direct labor rate standard } & \$ 11.60 \text { per hour } \\
\text { Variable overhead rate standard } & \$ 2.50 \text { per machine hou } \\
\text { Fixed overhead rate standard } & \$ 1.50 \text { per machine hou } \\
\text { Machine hour standard } & 0.25 \text { hours per unit } \end{array}\)
A) $2.56
B) $2.22
C) $2.16
D) $2.81
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Chapter 24: Short Run Decision Analysis
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Q1) Products Green,Red,and White have unit contribution margins of $6.50,$12,and $10,respectively,and require 2,4,and 3 direct labor hours per unit,respectively.If demand currently is far exceeding supply,on which product should the company concentrate its efforts?
A) Green
B) Red
C) White
D) Either Green or Red
Q2) Irrelevant costs are costs that are
A) different among alternatives.
B) avoidable costs.
C) opportunity costs.
D) sunk costs.
Q3) The common costs shared by two or more products before they are split off are called joint costs.
A)True
B)False
Q4) Discuss the qualitative factors that should be considered in short-run decision making.
Q5) What are the two steps in the analysis for a sales mix decision?
Page 27
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Chapter 25: Capital Investment Analysis
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Sample Questions
Q1) The proposals that will produce poor returns will have a positive impact on the organization's profitability.
A)True
B)False
Q2) Simple interest is the interest earned on a principal sum that is increased at the end of each period by the interest for that period.
A)True B)False
Q3) To use an annuity table,the cash flows for each interest period must be equal.
A)True
B)False
Q4) Depreciation expense influences cash flows because it directly affects
A) the amount of income taxes paid by the company.
B) cash received from revenues during the current period.
C) the carrying value of the asset.
D) accumulated depreciation.
Q5) The company's minimum rate of return is also referred to as its cost of capital. A)True B)False
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Chapter 26: Pricing Decisions,incltarget Costing and Transfer Pricing
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Q1) Focusing pricing objectives on sales growth can provide a measure of increasing market share as well as an incentive and target for managers for a period of time.
A)True
B)False
Q2) A company producing custom-designed products for its customers can be more conservative in its pricing strategy than a company producing standardized items.
A)True
B)False
Q3) Transfer prices affect the revenues and costs of the divisions involved but do not affect the revenues and costs of the company as a whole.
A)True
B)False
Q4) Each product or service has a target market that determines its demand. A)True B)False
Q5) Transfer prices are often called artificial or created prices. A)True
B)False
29
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Chapter 27: Quality Management and Measurement
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Sample Questions
Q1) Internal failure costs and prevention costs make up the costs of conformance.
A)True
B)False
Q2) Internal reports on quality at the Acme Publishing Company generated the following information for the Trade Division for the first three months of the year: \(\begin{array}{ll}\text { Total sales }&\$1,000,000\\
\text { Costs of quality: }\\
\text { Prevention } & 44,000 \\
\text { Appraisal } & 47,000 \\
\text { Internal failure } & 36,000 \\ \text { External failure } & 64.000 \end{array}\)
Compute the ratio of costs of conformance to total costs of quality.
A) 44.6%
B) 47.6%
C) 50.1%
D) 100%
Q3) Identify and describe three traits that differentiate management information systems (MIS)from traditional management accounting techniques.
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Chapter 28: Financial Analysis of Performance
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Sample Questions
Q1) Use the following information to calculate the ratios requested below.Round answers to two decimal places.Show your work.
<sub> </sub>
\[\begin{array} { l r }
\text { Average inventory } & \$ 6,000 \\
\text { Average total assets } & 80,000 \\
\text { Cost of goods sold } & 21,000 \\
\text { Income taxes expense } & 3,600 \\
\text { Interest expense } & 2,000 \\
\text { Net income } & 4,800 \\
\text { Net sales } & 40,000 \\
\text { Market price, December 31, on 2,000 shares } & \$ 36 / \text { share }
\end{array}\]
<sub> </sub>
\[\begin{array} { | l | l | l | l | }
\hline \text { Return an assets } && \text { Inventary turaver } & \\
\hline \text { Priceleanings (P/E) ratio } & & \text { Interest coverage ratid } & \\
\hline \end{array}\]
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