Intermediate Accounting Exam Review
Course Introduction
Intermediate Accounting dives deeper into the principles and standards of financial accounting, building on foundational concepts introduced in introductory courses. This course emphasizes the preparation, analysis, and interpretation of financial statements in conformity with generally accepted accounting principles (GAAP). Students explore complex topics such as revenue recognition, inventory valuation, long-term assets and liabilities, investments, and equity. Through case studies and problem-solving exercises, the course develops students' technical proficiency and critical thinking skills required for addressing real-world accounting challenges and understanding the framework of corporate financial reporting.
Recommended Textbook
Horngrens Cost Accounting A Managerial Emphasis16th Global Edition by Srikant M. Datar
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Chapter 1: The Manager and Management Accounting
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Q1) Which of the following is true of a budgeting system?
A)It compels managers to plan ahead.
B)It increases agency costs.
C)It is easy to measure the exact benefits of a budgeting system.
D)It leads to operational inefficiency.
Answer: A
Q2) A budget ________.
A)is the qualitative expression of a proposed plan of action by management
B)is an aid for coordinating what needs to be done to execute a plan
C)helps in identifying problems and uncertainties
D)promotes production automation
Answer: B
Q3) The Standards of Ethical Conduct for management accountants include concepts related to ________.
A)competence,performance,diligence,and reporting
B)competence,confidentiality,integrity,and credibility
C)experience,diligence,reporting,and objectivity
D)diligence,objectivity,conflicts of interest,and credibility
Answer: B
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Page 3
Chapter 2: An Introduction to Cost Terms and Purposes
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Sample Questions
Q1) Which of the following companies is part of the manufacturing sector of our economy?
A)Nike
B)Barnes & Noble
C)Corvette Law Firm
D)Sears,Roebuck,and Company
Answer: A
Q2) For last year,Watson Limited reported revenues of $420,000,cost of goods sold of $118,000,cost of goods manufactured of $105,000,and total operating costs of $60,000.Operating income for that year was ________.
A)$315,000
B)$302,000
C)$255,000
D)$242,000
Answer: D
Q3) Improvements in information-gathering technologies are making it possible to trace more costs as direct.
A)True
B)False
Answer: True
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Chapter 3: Cost-Volume-Profit Analysis
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Q1) Sparkle Jewelry sells 500 units resulting in $10,000 of sales revenue,$4,000 of variable costs,and $1,500 of fixed costs.Calculate the variable cost per unit.(Round the final answer to the nearest cent. )
A)$12.00
B)$6.00
C)$2.00
D)$8.00
Answer: D
Q2) A planned increase in advertising would be considered an increase in variable costs in CVP analysis.
A)True
B)False
Answer: False
Q3) One of the first steps to take when using CVP analysis to help make decisions is
A)calculating the break-even point
B)identifying the variable and fixed costs
C)calculation of the degree of operating leverage for the company
D)estimating the volume of sales to make a good profit
Answer: B
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Chapter 4: Job Costing
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Sample Questions
Q1) Global Manufacturing Inc.uses normal costing during the year to allocate manufacturing overhead to jobs in a job costing system.At year end,it uses the adjusted allocation rate approach to account for underallocated or overallocated overhead.During 2018,Global's manufacturing overhead was underallocated by 10%.Job 117 had the following costs:
Direct materials $1,600
Direct labor $3,400
Manufacturing overhead allocated $2,000
Which of the following would be the after adjustment cost of Job 117?
A)$7,340
B)$7,200
C)$7,700
D)$6,300
Q2) Direct costs are traced the same way for actual costing and normal costing. A)True
B)False
Q3) The cost-allocation base is a systematic way to link an indirect cost or group of indirect costs to cost objects.
A)True
B)False
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Chapter 5: Activity-Based Costing and Activity-Based Management
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Sample Questions
Q1) For an ABC system to be useful,it must allocated costs from all "links "of the value chain.
A)True
B)False
Q2) What are the four parts of the cost hierarchy.Briefly explain each part,and contrast this cost hierarchy to the fixed-variable dichotomy?
Q3) Companies that overcost products risk becoming less effective on pricing and losing market share when competition utilizes more accurate cost systems.
A)True
B)False
Q4) Which of the following is true of refinement of a costing system?
A)While refining a costing system,companies should identify as many indirect costs as is economically feasible.
B)A homogeneous cost pool will use multiple cost drivers to allocate costs.
C)It reduces the use of broad averages for assigning the cost of resources to cost objects.
D)It is likely to yield the most decision-making benefits when direct costs are a high percentage of total costs.
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Chapter 6: Master Budget and Responsibility Accounting
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Sample Questions
Q1) Budgeted production equals ________.
A)beginning finished goods inventory + budgeted unit sales - targeted ending finished goods inventory
B)targeted ending finished goods inventory + beginning finished goods inventorybudgeted unit sales
C)budgeted unit sales + targeted ending finished goods inventory - beginning finished goods inventory
D)budgeted unit sales + targeted ending finished goods inventory + beginning finished goods inventory
Q2) A quality control manager of a golf ball maker is most likely to be responsible for a(n)________.
A)revenue center
B)investment center
C)cost center
D)profit center
Q3) Rolling budgets are constantly updated to reflect the latest cost and revenue information.
A)True
B)False
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Page 8
Chapter 7: Flexible Budgets,direct-Cost Variances,and Management Control
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Sample Questions
Q1) Cost variances should be investigated ________.
A)when they are considered within the "in-control" range as determined by management
B)when the variance is more than a certain percentage of budgeted costs,as determined by management
C)even though the cost of investigation exceeds the benefit as determined by management
D)when the variance is less than a certain percentage of budgeted costs,as determined by management
Q2) Which of the following is the correct formula for the materials price variance?
A)(Actual price of input - Budgeted price of input)x Budgeted quantity of input
B)(Actual quantity of input used - Budgeted quantity of input allowed for actual output)x Budgeted price of input
C)(Actual price of input - Budgeted price of input)x Actual quantity of input
D)(Actual quantity of input used - Budgeted quantity of input allowed for actual output)x Actual price of input
Q3) Give at least three good reasons why a favorable price variance for direct materials might be reported.
Q4) Describe the purpose of variance analysis.
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Chapter 8: Flexible Budgets, overhead Cost Variances, and Management Control
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Sample Questions
Q1) An unfavorable production-volume variance always infers that management made a bad planning decision regarding the plant capacity.
A)True
B)False
Q2) Define variable overhead spending variance.Briefly explain why a favorable variable overhead spending variance may not always be desirable.
Q3) Effective planning of variable overhead costs means that managers must
A)increase the expenditures in the variable overhead budgets
B)focus on activities that add value for the customer and eliminate nonvalue-added activities
C)increase the linearity between total costs and volume of production
D)identify the product advertising requirements and factor those into the variable overhead budget
Q4) Prorated allocation of production-volume variance has the effect of approximating the allocation of fixed costs based on actual costs and actual output.
A)True
B)False
Q5) List the four steps to develop budgeted variable overhead cost-allocation.
Page 10
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Chapter 9: Inventory Costing and Capacity Analysis
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Sample Questions
Q1) Customers expect to pay a price that includes ________.
A)the cost of unused capacity
B)only the cost of actual capacity used
C)variable costs but not capacity costs
D)the cost of direct materials,direct labor,and fixed overhead
Q2) Speedy Supplies sells a product at a price of $150.It's variable manufactured cost is $30 and the variable marketing cost per unit is $17.50 with fixed cost per period of $60,000.What would be the change in operating income under variable costs if sales increase from 10,000 to 10,500 units?
A)$60,000
B)$51,250
C)$66,250
D)Loss of $8,750
Q3) Evaluating performance of managers over a long period,say over three-to five-years,helps to reduce undesirable buildup of inventories.
A)True
B)False
Q4) Should a company with high fixed costs and unused capacity raise selling prices to try to fully recoup its costs?
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Chapter 10: Determining How Costs Behave
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Sample Questions
Q1) To complete the first setup on a new machine took an employee 200 minutes.Using an 64% incremental unit-time learning model indicates that the second setup on the new machine is expected to take ________.
A)128.0 minutes
B)312.5 minutes
C)328.0 minutes
D)72.0 minutes
Q2) Why is choosing the correct cost driver to estimate indirect manufacturing costs important?
A)Identifying the wrong driver can lead management to incorrect and costly decisions
B)Identifying the wrong driver can increase actual overhead costs
C)Identifying the wrong driver can increase the usage of the correct driver
D)Identifying the wrong driver can increase the direct costs of the cost object
Q3) Nonlinear cost functions can result because of learning curves.
A)True
B)False
Q4) What are the three criteria a company should use to evaluate and choose a cost driver? Briefly explain each of the three criteria.
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Page 12
Chapter 11: Decision Making and Relevant Information
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Q1) If a company does not use one of its limited resources in the best possible way,the lost contribution to income could be called a(n)________.
A)business function cost
B)carrying cost
C)opportunity cost
D)sunk cost
Q2) Feedback regarding previous actions may affect ________.
A)future predictions
B)implementation of the decision
C)the decision model
D)All of these answers are correct.
Q3) In linear programming,a constraint is a mathematical inequality or equality that must be satisfied by the variables in a mathematical model.
A)True
B)False
Q4) Incremental revenue is the sum of differential revenues of two alternatives.
A)True
B)False
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Chapter 12: Strategy,balanced Scorecard,and Strategic
Profitability Analysis
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Q1) The revenue effect of growth is calculated by multiplying the difference in units sold (current year minus the previous year)by selling price in the current year.
A)True B)False
Q2) Cost effect of productivity for fixed costs is calculated by multiplying the difference in units of capacity (current year capacity units minus the previous year capacity units)by price per unit of capacity of the previous year.
A)True B)False
Q3) Which of the following statements is true of productivity measures?
A)Partial productivity and total factor productivity measures never work best together.
B)Partial productivity explicitly considers gains from using fewer physical inputs as well as substitution among inputs.
C)All productivity measures are physical measures lacking financial content.
D)Total factor productivity considers the trade-offs across various inputs based on current input prices.
Q4) What are the four key perspectives in the balanced scorecard?
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Chapter 13: Pricing Decisions and Cost Management
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Sample Questions
Q1) Clark Manufacturing offers two product lines,IN2 and EL5.The demand of the IN2 product line is inelastic,while the demand of the EL5 product line is very elastic.If Clark initiates a price increase for both product lines,how will customer demand change? How will the price increase affect operating profits?
Q2) Einstein Motors,has a capacity to produce 38,000 electric cars.Due to a temporary subsidy announced,there is a sudden increase in demand.Einstein decides to adopt peak-load pricing and charge a premium of 30% over its normal selling price of $4000.It has already accepted orders for 29,000 units at normal selling price.What is the total contribution to the company on sale of additional 9000 units if the variable cost per unit is $2000?
A)$36,000,000
B)$28,800,000
C)$18,000,000
D)$10,800,000
Q3) Cost allocation data could be a valuable input to encourage design of products that are simpler to manufacture and less costly to service.
A)True
B)False
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Chapter 14: Cost Allocation, customer-Profitability Analysis, and Sales-Variance Analysis
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Q1) Discontinuing an unprofitable customer should be solely done on the basis of profitability.
A)True
B)False
Q2) Which of the following is a corporate-sustaining cost?
A)design costs
B)corporate brand advertising
C)shipment costs
D)research and development costs
Q3) The sales-quantity variance occurs in a multi-product company from a change in the sales mix.
A)True
B)False
Q4) Which of the following classifications would the cost of visiting customers would most likely fit into?
A)customer output unit-level cost
B)customer batch-level cost
C)customer-sustaining cost
D)corporate-sustaining cost
Q5) What actions might be taken with an unprofitable customer?
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Chapter 15: Allocation of Support-Department Costs, common
Costs, and Revenues
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Q1) Revenue allocation based on the number of physical units is only appropriate when individual products in the bundle are of equal value.
A)True
B)False
Q2) The stand-alone method of allocating determines the weights for cost allocation by considering each user of the cost as a separate entity.
A)True
B)False
Q3) Which of the following would be considered the biggest advantage of using practical capacity to allocate costs?
A)focuses the user's division with the costs of overused capacity
B)never causes over or under-allocated overhead
C)burdens the user divisions with the costs of unused capacity
D)focuses management's attention on unused capacity
Q4) All contracts with U.S.government agencies must comply with the cost accounting standards issued by the SEC.
A)True
B)False
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Chapter 16: Cost Allocation: Joint Products and Byproducts
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Q1) Separable costs include manufacturing costs only.
A)True
B)False
Q2) The sales method for recognizing byproducts is conceptually correct because it is consistent with the matching principle.
A)True
B)False
Q3) Joint costing allocates the joint costs to the individual products that are eventually sold.
A)True
B)False
Q4) The production method for recognizing byproducts reduces the cost of manufacturing the main or joint products in the income statement.
A)True
B)False
Q5) List three reasons why we allocate joint costs to individual products or services.Give an example of when the particular cost allocation reason would come into use.
Q6) What are joint costs,separable costs,and a split-off point?
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Chapter 17: Process Costing
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Q1) Transferred-in costs are treated as if they are ________.
A)conversion costs added at the beginning of the process
B)costs of beginning inventory added at the beginning of the process
C)direct labor costs added at the beginning of the process
D)a separate direct material added at the beginning of the process
Q2) Managers find operation costing useful in cost management because it ________.
A)often results in profit maximization
B)results in cost minimization
C)focuses on control of physical processes of a given production system
D)uses job costing to account for the conversion costs and process costing for the material and customizable components
Q3) The first-in,first-out process-costing method assumes that the earliest equivalent units in work in process are completed first.
A)True
B)False
Q4) There are basically two distinct methods of calculating product costs.
Required:
Compare and contrast the two methods.
Q5) List and describe the five steps in process costing.
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Chapter 18: Spoilage, rework, and Scrap
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Q1) What is the advantage and disadvantage of early inspections?
Q2) Which of the following statements is true of scrap?
A)When a production process yields two or more products with high total sales values relative to the total sales values of other products,those are called scrap.
B)For accounting purpose,distinction is made between normal and abnormal scrap.
C)Scrap refers to units of production,fully or partially completed,that do not meet the specifications required by customers for good units and are discarded or sold at reduced prices
D)Scrap is either sold or disposed of quickly or it is stored for later sale,disposal,or reuse.
Q3) How can a company account for scrap? Include in your explanation a discussion of the two aspects of accounting for scrap.
Q4) Distinguish among spoilage,reworked units,and scrap.Give an example of each.
Q5) Why do firms often conduct multiple inspections?
Q6) When inventories are present,classifying spoilage as normal rather than abnormal results in an decrease in current operating income.
A)True
B)False
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Chapter 19: Balanced Scorecard: Quality and Time
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Sample Questions
Q1) Which of the following is the mathematical expression for calculating manufacturing cycle efficiency (MCE)?
A)MCE = Manufacturing cycle time ÷ Value-added manufacturing time
B)MCE = Manufacturing time ÷ Value-added manufacturing time
C)MCE = Value-added manufacturing time ÷ Manufacturing cycle time
D)MCE = Value-added manufacturing time ÷ Manufacturing time
Q2) What are ISO 9000 and ISO 14000?
Q3) A machine has been identified as a bottleneck and the source of the constraint for a manufacturing company that has multiple products and multiple machines.Discuss ways the company can overcome the bottleneck.
Q4) Customer response time is the time it takes from the time a customer places an order for a product or service to the time the product or service is delivered to the customer.
A)True
B)False
Q5) Increasing the capacity of a bottleneck resource increases manufacturing cycle times and delays.
A)True
B)False
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Chapter 20: Inventory Management, just-In-Time, and Simplified Costing Methods
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Q1) The optimal safety-stock level is the quantity of safety stock that minimizes the sum of annual relevant stockout and ordering costs.
A)True
B)False
Q2) Which of the following statements is true of costs associated with goods for sale?
A)Appraisal costs is a subcategory of shrinkage costs.
B)Special processing costs are always part of purchasing costs.
C)Opportunity costs are not recorded in the accounting system.
D)Stockout costs are costs that arise when a company runs out of a particular item for which there is no customer demand.
Q3) The reorder point is the quantity level of inventory at which a new purchase order is made.
A)True
B)False
Q4) All inventory costs are available in financial accounting systems.
A)True
B)False
Q5) What are five features of a just-in-time manufacturing system?
Page 22
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Chapter 21: Capital Budgeting and Cost Analysis
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Q1) Which of the following methods of capital budgeting divides the average annual accrual accounting income of a project by a measure of the investment in it?
A)net present value
B)internal rate of return
C)payback method
D)accrual accounting rate of return
Q2) The net present value (NPV)method calculates the expected monetary gain or loss from a project by discounting all expected future cash inflows and outflows back to the present point in time using the required rate of return.
A)True
B)False
Q3) The accrual accounting rate-of-return method has a significant weakness for use in making capital budgeting decisions because it does NOT track cash flows and it ignores the time value of money.
A)True
B)False
Q4) Explain capital budgeting and then briefly discuss each of the five stages of a capital budgeting project?
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Chapter 22: Management Control Systems, transfer Pricing, and Multinational Considerations
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Q1) Which of the following is a part of the formal management control system?
A)mutual commitments among the members of the organization
B)the accounting information system provides metrics about costs,revenues,and contribution margins
C)shared values and loyalties among the members of the organization
D)general understanding about acceptable behavior for managers
Q2) In analyzing transfer prices,the ________.
A)buyer will not willingly purchase a product for less than the incremental costs incurred to manufacture the product internally
B)seller will not willingly sell a product for less than the incremental costs incurred to make the product
C)buyer will willingly pay more than the ceiling transfer price
D)buyer will not pay less than the ceiling transfer price
Q3) Dual pricing uses two separate transfer-pricing methods to price each transfer from one subunit to another.
A)True
B)False
Q4) Dual pricing is not widely used.Explain its disadvantages.
Q5) What does Section 482 of the U.S.Internal Revenue Code govern?
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Chapter 23: Performance Measurement, compensation, and Multinational Considerations
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Q1) To calculate the value of fixed assets for an overseas branch,the historical rate of exchange is used for its conversion.
A)True
B)False
Q2) Which of the following describes boundary control systems?
A)set limits by instituting and communicating standards of behavior and codes of conduct expected of all employees
B)articulate the mission,purpose,and core values of a company
C)are formal information systems managers use to focus the company's attention and learning on key strategic issues
D)describe the geographic limits of a company and help organize its layout
Q3) To evaluate overall performance,return on investment and residual income measures are more appropriate than return on sales.
A)True
B)False
Q4) An important element in designing accounting-based performance measures is choosing the time horizon of the performance measures.Discuss.
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