Managerial Accounting Exam Review
Course Introduction
Managerial Accounting focuses on the use of accounting information by managers within organizations to inform business decisions, plan operations, and control activities. The course covers key topics such as cost behavior, budgeting, performance measurement, product costing, and variance analysis. Emphasizing internal decision-making, it teaches students how to analyze financial data, develop cost management strategies, and communicate recommendations to improve organizational efficiency and profitability. Through case studies and practical examples, students develop the analytical skills necessary to apply accounting tools in real-world business scenarios.
Recommended Textbook
Survey of Accounting 5th Edition by Thomas P Edmonds
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Page 2
Chapter 1: An Introduction to Accounting
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Sample Questions
Q1) Which of the following is not an element of the financial statements?
A) Net income
B) Revenue
C) Assets
D) Cash Answer: D
Q2) Dividends paid by a company are shown on the:
A) income statement.
B) statement of changes in stockholders' equity.
C) statement of cash flows.
D) the statement of changes in stockholders' equity and the statement of cash flows.
Answer: D
Q3) Which of the following cash transactions results in no net change in assets?
A) Borrowing cash from a bank
B) Issuing common stock for cash
C) Purchasing land for cash
D) Providing services for cash
Answer: C
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3
Chapter 2: Accounting for Accruals and Deferrals
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Sample Questions
Q1) Which of the following is an asset source transaction?
A) Issued common stock.
B) Paid a cash dividend to stockholders.
C) Received a payment on accounts receivable.
D) Accrued salary expense.
Answer: A
Q2) The balance in a revenue account at the beginning of an accounting period will always be
A) zero.
B) last period's ending balance.
C) higher than the previous periods beginning balance.
D) equal to the amount of retained earnings for the previous period.
Answer: A
Q3) Which of the following is an asset use transaction?
A) Purchased machine for cash.
B) Recorded insurance expense at the end of the period.
C) Invested cash in an interest earning account.
D) Accrued salary expense at the end of the period.
Answer: B
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Page 4
Chapter 3: Accounting for Merchandising Businesses
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Sample Questions
Q1) The term "FOB Shipping Point" means:
A) The buyer pays the shipping cost.
B) The seller pays the shipping cost.
C) The buyer records transportation cost as an expense.
D) The seller records transportation-out cost.
Answer: A
Q2) When using a perpetual inventory system, which of the following events is an asset use transaction?
A) Paid cash to purchase inventory.
B) Paid cash for transportation-out costs.
C) Purchased inventory on account.
D) Paid cash for transportation-in costs.
Answer: B
Q3) A common size income statement is prepared by dividing all amounts on the statement by net income.
A)True
B)False
Answer: False
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Chapter 4: Internal Controls, Accounting for Cash, and Ethics
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Sample Questions
Q1) On September 30, the bank statement of Fine Company showed a balance of $7,800. The following information was revealed by comparing the bank statement to the cash balance in Fine's accounting records: (1) deposits in transit amounted to $3,150 (2) outstanding checks amounted to $6,200 (3) a $550 check was incorrectly drawn on Fine's account (4) NSF checks returned by the bank were $750 (5) bank service charge was $29
(6) credit memo for $75 for the collection of one of the company's account receivable
Based on the above information, the true cash balance was:
A) $5,346.
B) $5,300.
C) $4,596.
D) $7,096.
Q2) The true cash balance can only be determined if both the unadjusted bank balance and the unadjusted cash balance are known.
A)True
B)False
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Page 6
Chapter 5: Accounting for Receivables and Inventory Cost Flow
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Sample Questions
Q1) The collection of an account receivable is an asset source transaction.
A)True
B)False
Q2) Allegheny Company ended Year 1 with balances in Accounts Receivable and Allowance for Doubtful Accounts of $23,000 and $900, respectively. During Year 2, Allegheny wrote off $1,500 of Uncollectible Accounts. After aging its receivables, Allegheny estimates that the ending Allowance for Doubtful Accounts balance should be $1,600. What will Allegheny report as Uncollectible Accounts Expense on its Year 2 income statement?
A) $2,200
B) $1,500
C) $700
D) $1,600
Q3) Generally accepted accounting principles restrict or limit a company's freedom to change accounting methods from one year to the next.
A)True
B)False
Q4) Collection of a credit card receivable is an asset source transaction.
A)True
B)False
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Chapter 6: Accounting for Long-Term Operational Assets
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Sample Questions
Q1) On January 1, Year 1, Missouri Co. purchased a truck that cost $57,000. The truck had an expected useful life of 10 years and a $6,000 salvage value. The amount of depreciation expense recognized in Year 2 assuming that Missouri uses the double declining-balance method is:
A) $9,120.
B) $11,400.
C) $10,200.
D) $8,160.
Q2) On January 1, Year 1, Phillips Company made a basket purchase including land, a building and equipment for $380,000. The appraised values of the assets are $20,000 for the land, $340,000 for the building and $40,000 for equipment. Phillips uses the double-declining-balance method of depreciation for the equipment which is estimated to have a useful life of four years and a salvage value of $5,000. The depreciation expense for Year 1 for the equipment is:
A) $17,000.
B) $20,000.
C) $9,500.
D) $19,000.
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Page 8
Chapter 7: Accounting for Liabilities
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Sample Questions
Q1) The party who borrows money in a note payable is known as the:
A) Maker.
B) Payee.
C) Issuer.
D) Both Maker and Issuer.
Q2) Houston Co. borrowed $20,000 from Dallas Co. on March 1, Year 1. Houston is to repay the principal and interest on March 1, Year 2. The interest rate is 8%. If the year-end adjustment is properly recorded, what will be the effects of the accrual on Houston's Year 1 financial statements?
A) Increase liabilities and increase expenses
B) Increase assets and increase revenues
C) Increase assets and increase liabilities
D) No effect
Q3) Selling $130 of merchandise to a customer for $200 cash in a state where the sales tax rate is 4%:
A) Increases cash flow from operating activities by $208.
B) Increases total assets by $78.
C) Increases equity by $70.
D) All of these answer choices are correct.
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Page 9
Chapter 8: Proprietorships, Partnerships, and Corporations
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Sample Questions
Q1) On September 1, Year 1, Orville Corporation has unrestricted Retained Earnings of $600,000, Appropriated Retained Earnings of $400,000, Cash of $850,000, and Accounts Payable of $50,000. What is the maximum amount that can be used for cash dividends?
A) $850,000
B) $600,000
C) $800,000
D) $450,000
Q2) At the end of the accounting period, Houston Company had $12,000 of par value common stock issued, additional paid-in capital in excess of par value - common of $11,000, retained earnings of $12,000, and $4,000 of treasury stock. The total amount of stockholders' equity is:
A) $37,000.
B) $39,000.
C) $19,000.
D) $31,000.
Q3) Establishing a sole proprietorship generally requires the owner to get a charter from the state government.
A)True
B)False
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Page 10
Chapter 9: Financial Statement Analysis
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Sample Questions
Q1) Earnings before interest and taxes divided by interest expense is the formula for which of these analytical measures?
A) Debt to assets ratio
B) Earnings per share
C) Return on investment
D) Number of times interest is earned
Q2) Which of the following statements is generally incorrect from an investor's perspective?
A) A 1:1 current ratio is generally preferred over a 1.5:1 current ratio.
B) A 20-day average collection period for accounts receivable is generally preferred over a 30-day average collection period.
C) A 5% dividend yield is generally preferred over a 3% dividend yield.
D) A 10% net margin is generally preferred over an 8% net margin.
Q3) In vertical analysis, each item is expressed as a percentage of:
A) Total expenses on the income statement.
B) Net income on the income statement.
C) Sales on the income statement.
D) None of these answers is correct.
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Chapter 10: An Introduction to Management Accounting
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Sample Questions
Q1) The biggest challenge in computing the total cost per unit of a product is determining the amount of overhead cost that should be assigned to each unit.
A)True
B)False
Q2) Choose the answer that is not a distinguishing characteristic of financial accounting information.
A) It is global information that reflects the performance of the whole company.
B) It is focused primarily on the future.
C) It is more concerned with financial data than physical or economic data.
D) It is more highly regulated than managerial accounting information.
Q3) Most internal users of accounting information need primarily global information that reflects the performance of the company as a whole.
A)True
B)False
Q4) Which of the following is not classified as manufacturing overhead?
A) Product delivery costs
B) Supervisory labor
C) Factory insurance
D) Production supplies
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Chapter 11: Cost Behavior, Operating Leverage, and Profitability Analysis
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Sample Questions
Q1) A company can use target profit analysis to determine the level of sales required to earn a target loss.
A)True
B)False
Q2) At the break-even point:
A) Sales would be equal to total costs.
B) Contribution margin would be equal to total fixed costs.
C) Sales would be equal to fixed costs.
D) Both sales would be equal to total costs and contribution margin would be equal to total fixed costs are correct.
Q3) Select the incorrect statement regarding the relationship between cost behavior and profits.
A) A pure variable cost structure offers higher potential rewards.
B) A pure fixed cost structure offers more security if volume expectations are not achieved.
C) In a pure variable cost structure, when revenue increases by $1, so do profits.
D) In a pure fixed cost structure, the unit selling price and unit contribution margin are equal.
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Chapter 12: Cost Accumulation, Tracing, and Allocation
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Sample Questions
Q1) For a manufacturer, measures of volume may include:
A) Number of units produced.
B) Number of square feet occupied.
C) Amount of direct materials used in production.
D) Both number of units produced and amount of direct materials used in production are correct.
Q2) A chair manufacturer makes custom chairs using hand tools, wood, glue, and varnish. Which of the following statements is true?
A) The costs of wood and glue would be treated as direct costs.
B) Wood, glue, and varnish would all be direct materials.
C) Wood would be accounted for as a direct cost, and glue and varnish as indirect costs.
D) The concepts of direct and indirect costs are not applicable here.
Q3) The accuracy of managerial accounting information usually is more important than timeliness.
A)True
B)False
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14
Chapter 13: Relevant Information for Special Decisions
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Sample Questions
Q1) Gibbs Corporation makes indoor gas fireplaces. A standard fireplace includes unit-level materials, labor, and overhead costs. In addition, the company incurs product-level engineering and advertising costs. The sales staff is paid a 5% commission on each fireplace sold. A sales representative has been in contact with a building developer who wants to buy 20 fireplaces only if he can buy them at amount lower than Gibbs' selling price. Which of the following costs would be relevant to this special order decision?
A) The sales commissions
B) The product-level engineering and advertising costs
C) The unit-level materials, labor, and overhead
D) All of the above.
Q2) For decision-making purposes, qualitative factors are relevant if they differ among the alternatives and relate to the future.
A)True
B)False
Q3) Qualitative information is only relevant for decision making if it can be quantified. A)True
B)False
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Chapter 14: Planning for Profit and Cost Control
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Q1) Select the correct statement.
A) The four advantages of budgeting include planning, coordination, performance measurement, and reporting.
B) In a participative budgeting system, budget information flows in one direction only, from bottom to top.
C) The three major categories of the master budget are operating budgets, capital budgets, and pro forma financial statements.
D) The accounting department normally coordinates the development of the sales forecast.
Q2) The inventory purchases budget is based on which budget?
A) Cash budget
B) Sales budget
C) Selling and administrative expense budget
D) None of the choices is correct.
Q3) Pro forma financial statements are prepared at the end of the year and are used to evaluate the performance of managers.
A)True
B)False
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Chapter 15: Performance Evaluation
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Sample Questions
Q1) Which of the following statements regarding investment centers is incorrect?
A) A manager of an investment center is responsible for the investment of capital, but not revenues or expenses.
B) Investment centers are commonly found at the higher levels of an organization chart.
C) A manager of an investment center should be accountable for assets, liabilities, and earnings.
D) Return on investment and residual income are tools used to assess managers of an investment center.
Q2) If the master budget prepared at a volume level of 10,000 units includes direct materials of $40,000, a flexible budget based on a volume of 12,000 units would include direct materials of $48,000.
A)True
B)False
Q3) A static budget is one that shows estimated revenues and costs at multiple activity levels.
A)True
B)False
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Chapter 16: Planning for Capital Investments
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Sample Questions
Q1) Ashley projects that she can get $100,000 cash per year for 5 years on a real estate investment project. If Ashley wants to earn a rate of return of 12%, what is the maximum that she should pay for the investment? . (Round your answer to the nearest dollar.)
A) $56,743
B) $446,429
C) $360,478
D) $560,000
Q2) The future value of $1 table should be used to discount lump sum cash flows expected to occur in the future.
A)True B)False
Q3) Cash outflows can be categorized into all of the following groups except:
A) opportunity costs associated with selecting a specific capital project.
B) outflows associated with the initial investment.
C) working capital commitments.
D) increases in operating expenses.
Q4) Capital investment decisions involve investments in current assets.
A)True B)False
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