ACC556 Financial Accounting for Managers
CHAPTER 1 EXERCISE
Question 1 When
expenses exceed revenues, which of the following is true?
Answers:
a net loss
results
a net
income results
assets
equal liabilities
assets are
increased
Question 2 Which
of the following is not a common way that managers use the balance sheet?
Answers:
To analyze
the balances of assets, liabilities, and stockholders’ equity throughout the
accounting period
To
determine if the cash balance is sufficient for future needs
To analyze
the balance between debt and common stock financing
To analyze
the balance of accounts receivable on the last day of the accounting period MT
Question 3 Stockholders’
equity is comprised of
Answers:
common
stock and dividends.
common
stock and retained earnings.
dividends
and retained earnings.
net income
and retained earnings.
Question 4 External
users want answers to all of the following questions except
Answers:
Is the
company earning satisfactory income?
Will the
company be able to pay its debts as they come due?
Will the
company be able to afford employee pay raises this year?
How does
the company compare in profitability with competitors?
Question 5 One
way of stating the accounting equation is: Assets + Liabilities = Stockholders’
Equity.
Selected
Answer:
False
Answers:
True
False
ACC556 Financial Accounting for Managers
CHAPTER 2 EXERCISE
Question 1 Equipment
is classified on the balance sheet as
Answers:
a current
asset.
property, plant, and equipment.
an
intangible asset.
a long-term
investment.
Question 2 Each
of the following statements is justified by a fundamental quality or an
enhancing of quality accounting. Write the letter in the blank next to each
statement corresponding to the quality involved.
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Question
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Consistency
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A company uses the same
accounting principles from year to year.
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Verifiable
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Information that may be
duplicated using the same methods.
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Understandability
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Information presented in a
clear and concise fashion.
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Relevance
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Information that makes a
difference in a decision.
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Faithful
representation
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Information accurately
depicts what really happened.
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Question 3 For
accounting purposes, business transactions should be kept separate from the
personal transactions of the stockholders of the business.
Answers:
True
False
Question 4 Based
on the following data, what is the amount of current assets?
Accounts
payable……………………………………………………….. $62,000
Accounts
receivable……………………………………………………..
100,000
Cash………………………………………………………………………. 50,000
Intangible
assets…………………………………………………………
100,000
Inventory…………………………………………………………………. 138,000
Long-term
investments………………………………………………….
160,000
Long-term
liabilities………………………………………………………
200,000
Short-term
investments………………………………………………….
80,000
Notes
payable…………………………………………………………….
56,000
Property,
plant, and equipment……………………………………………
1,340,000
Prepaid
insurance………………………………………………………..
2,000
Answers:
$212,000
$370,000
$232,000
$230,000
Question 5 Garrison
Company prepares quarterly reports, which it distributes to all stockholders
and other entities that rely on its accounting information. Which of the
following is the best term for the key assumption in financial reporting that
Garrison is following?
Answers:
Monetary
unit assumption
Going
concern assumption
Economic
entity assumption
Periodicity assumption.
ACC556 Financial Accounting for Managers
CHAPTER 3 EXERCISE
Question 1 The
primary purpose of the trial balance is to.
Answers:
disclose
the complete effect of a transaction in one place.
make sure a
journal entry is not posted twice.
transfer
journal entries to the ledger accounts.
prove the equality of the debit and credit
amounts after posting.
Question 2 Which
one of the following represents the expanded basic accounting equation?
Answers:
Assets =
Liabilities + Common Stock + Dividends – Revenue – Expenses
Assets +
Dividends + Expenses = Liabilities + Common Stock + Revenues
Assets= Liabilities
+ Common Stock + Revenues – Expenses - Dividends
Assets = Revenues
+ Expenses – Liabilities
Question 3 Match
the items below by entering the appropriate code letter in the space provided.
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Question
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Account
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An accounting record of increases and
decreases in specific assets, liabilities, and stockholders’ equity items.
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Normal account balance
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The side which increases an account.
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Debit
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Left side of an account.
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Revenue account
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Has a credit normal balance
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Ledger
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The entire group of accounts
maintained by a company.
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Journal
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Shows the debit and credit effects of
specific transactions.
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Posting
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Transferring journal entries to
ledger accounts.
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Chart of accounts
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A list of all the accounts used by a
company.
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Trial balance
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A list of accounts and their balances
at a given time.
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Source document
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Evidence that a transaction has taken
place.
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Question 4 If
total liabilities decreased by $4,000, then
Answers:
stockholders’
equity must have decreased by $4,000.
assets must have decreased by $4,000, or
stockholders’ equity must have increased by $4,000.
assets and
stockholders’ equity each increased by $2,000.
assets must
have increased by $4,000.
Question 5 All
of the following are characteristics of every accounting information system
except it is a system
Answers:
that
collects transaction data.
that
processes transaction data.
that
communicates financial information to decision makers.
of data storage hardware for the chart of
accounts.
ACC556 Financial Accounting for Managers
CHAPTER 4 EXERCISE
Question 1 An
adjusting entry to a prepaid expense is required to recognize expired expenses.
Answers:
True
False
Question 2 Management
usually wants ________ financial statements and the IRS requires all businesses
to file _________ tax returns.
Answers:
annual,
annual
monthly, annual
quarterly,
monthly
monthly,
monthly
Question 3 Unearned
revenue is a prepayment that requires an adjusting entry when services are
performed.
Answers:
True
False
Question 4 Given
the data below for a firm in its first year of operation, determine net income
under the cash basis of accounting.
Cash received from
customers $48,000
Accounts receivable
12,000
Cash paid for expenses 26,000
Accounts payable (related to
expenses) 3,000
Prepaid rent for next
period
7,000
Answers:
$22,000
$31,000
$24,000
$15,000
Question 5 Which
statement is?
Answers:
As long as
a company consistently uses the cash basis of accounting, generally accepted
accounting principles allow its use.
The use of the cash basis of accounting
violates both the revenue recognition and expense recognition principles.
The cash
basis of accounting is objective because no one can be certain of the amount of
revenue until the cash is received.
As long as
management is ethical, there are no problems with using the cash basis of
accounting.
ACC556 Financial Accounting for Managers
CHAPTER 5 EXERCISE
Question 1 Which
statement is in?
Answers:
The sales
revenue account is used to record the sales of goods held for resale to
customers.
Sales discounts are recorded as debits to the
sales revenue account.
The sales
revenue account is a revenue account.
The sales
revenue account has a normal credit balance and is closed at the end of the
accounting period.
Question 2 As
the president of Harter Company, you notice that no discounts have been taken
when settling accounts payables. What would be an acceptable explanation?
Answers:
All invoices have credit terms of n/30.
There is
not sufficient cash to pay within the discount period.
Discounts
are missed because no one knows how to enter them in the new accounting
software.
The full
amount of the invoice is being paid within the discount period and the treasurer
is pocketing the discount amount.
Question 3 With
the periodic inventory system, goods available for sale must be calculated
before cost of goods sold.
Answers:
True
False
Question 4 Which
of the following provides the best rationale regarding analysts' views about
the information value of the gross profit rate versus the gross profit amount?
Answers:
The gross
profit amount is more informative than the gross profit rate because it is a
dollar amount rather than a ratio.
The gross profit amount is less informative
than the gross profit rate because the latter presents a meaningful
relationship between gross profit and net sales.
The gross
profit amount is more informative than the gross profit rate because the gross
profit rate is only used to describe a few industries while the gross profit
amount is universally used.
The gross
profit amount is more informative than the gross profit rate because high
volume operations are able to calculate the gross profit rate but not the gross
profit amount.
Question 5 Which
of the following items does not result in an adjustment in the merchandise
inventory account under a perpetual system?
Answers:
A purchase
of merchandise.
A return of
merchandise inventory to the supplier
Payment of freight costs for goods shipped to
a customer
Payment of
freight costs for goods received from a supplier
ACC556 Financial Accounting for Managers
CHAPTER 6 EXERCISE
Question 1 The
LIFO reserve is
Answers:
the difference between the value of the
inventory under LIFO and the value under FIFO.
an amount
used to adjust inventory to the lower of cost or market.
the
difference between the value of the inventory under LIFO and the value under
average cost.
the amount
used to adjust inventory to history cost.
Question 2 If
a company has no beginning inventory and the unit cost of inventory items does
not change during the year, the value assigned to the ending inventory will be
the same under LIFO and average cost flow assumptions.
Answers:
True
False
Question 3 Raw
materials inventories are the goods that a manufacturing company has completed
and are ready to be sold to customers.
Answers:
True
False
Question 4 Noise
Makers Inc has the following inventory data:
July 1 Beginning inventory 20 units at $19 $ 380
7 Purchases 70 units at $20 1,400
22 Purchases 10 units at $22 220
$2,000
A physical
count of merchandise inventory on July 30 reveals that there are 32 units on
hand. Using the average cost method, the value of ending inventory is
Answers:
$620.
$640.
$651.
$660.
Question 5 Which
statement concerning lower of cost or market (LCM) is in?
Answers:
LCM is an
example of a company choosing the accounting method that will be least likely
to overstate assets and income.
Under the LCM basis, market does not apply
because assets are always recorded and maintained at cost.
The LCM
basis uses current replacement cost because a decline in this cost usually
leads to a decline in the selling price of the inventory item.
LCM is
applied after one of the cost flow assumptions has been applied.
ACC556 Financial Accounting for Managers
CHAPTER 7 EXERCISE
Question 1 In
large companies, the independent internal verification procedure is often
assigned to
Answers:
computer
operators.
management.
internal
auditors.
outside
CPAs.
Question 2 Under
the concept of establishment of responsibility, how many people should have the
ultimate responsibility?
Answers:
Everyone in
the organization.
An
individual and his/her supervisor.
Only one
individual.
The CEO.
Question 3 Cash
equivalents are highly liquid investments that can be converted into a specific
amount of cash.
Answers:
True
False
Question 4 All
of the following are true regarding the management and monitoring of cash
except
Answers:
companies
may have plenty of sales, but insufficient cash to support operations.
the cash to
cash operating cycle for a manufacturer is generally shorter than that of a
merchandising company.
manufacturers
may experience a significant lag between the purchase of raw materials and the
receipt of cash from customers.
companies
should have sufficient cash to meet payments but minimize the amount of
non-revenue-generating cash on hand.
Question 5 Sam’s
Grocery Store has the following policy. ‘Only one cashier can have access to a
cash drawer.’ Which internal control principle supports this policy?
Answers:
Documentation
procedures.
Segregation
of duties.
Physical
controls.
Establishment
of responsibilities.
ACC556 Financial Accounting for Managers
CHAPTER 8 EXERCISE
Question 1 Bad
Debt Expense is considered
Answers:
an
avoidable cost in doing business on a credit basis.
an internal
control weakness.
a necessary risk of doing business on a credit
basis.
avoidable
unless there is a recession.
Question 2 An
aging of accounts receivable schedule is based on the premise that the longer
the period an account remains unpaid, the greater the probability that it will
eventually be collected.
Answers:
True
False
Question 3 The
expense recognition
Answers:
requires
that all credit losses be recorded when an individual customer cannot pay.
necessitates the recording of an estimated
amount for bad debts.
results in
the recording of a known amount for bad debt losses.
is not
involved in the decision of when to expense a credit loss.
Question 4 On
January 15, Nifty Company sells merchandise on account to Martinez Associates
for $3,000 with terms 3/10, n/30. On January 20, Martinez returns merchandise
worth $600 to Nifty. On January 24, payment is received from Martinez for the
balance due. What is the amount of cash received?
Answers:
$2,400
$2,328
$2,310
$1,680
Question 5 If
a company has significant concentrations of credit risk, it must discuss this
risk in the notes to its financial statements.
Answers:
True
False
ACC556 Financial Accounting for Managers
CHAPTER 9 EXERCISE
Question 1 Recording
depreciation on plant assets affects the balance sheet and the income
statement.
Answers:
True
False
Question 2 The
book value of an asset will equal its fair value at the date of sale if
Answers:
a gain on
disposal is recorded.
no gain or loss on disposal is recorded.
the plant
asset is fully depreciated.
a loss on
disposal is recorded.
Question 3 Which
of the following statements concerning financial statement presentation is
false?
Answers:
Intangibles
are reported separately under Intangible Assets.
The
balances of major classes of assets may be disclosed in the footnotes.
The
balances of the accumulated depreciation of major classes of assets may be
disclosed in the footnotes.
The balances of all individual assets, as they
appear in the subsidiary plant ledger, should be disclosed in the footnotes.
Question 4 A
plant asset was purchased on January 1 for $45,000 with an estimated salvage
value of $5,000 at the end of its useful life. The current year's Depreciation
Expense is $5,000 calculated on the straight-line basis and the balance of the
Accumulated Depreciation account at the end of the year is $25,000. The
remaining useful life of the plant asset is
Answers:
10 years.
8 years.
5 years.
3 years.
Question 5 The
Modified Accelerated Cost Recovery System (MACRS) is a depreciation method that
Answers:
is used for tax purposes.
must be
used for financial statement purposes.
is required
by the SEC.
expenses an
asset over a single year because capital acquisitions must be expensed in the
year purchased.
ACC556 Financial Accounting for Managers
CHAPTER 10 EXERCISE
Question 1 Most
notes are not interest bearing.
Question 2 Unearned
revenues are received before goods are delivered or services are rendered.
Question 3 Material
gains or losses on bond redemption are reported as part of other gains/losses
on the income statement.
Question 4 Liabilities
are classified on the balance sheet as current or
Question 5 With
an interest-bearing note, the amount of assets received upon issuance of the
note is generally
ACC556 Financial Accounting for Managers
CHAPTER 11 EXERCISE
Question 1 A
corporation is not an entity that is separate and distinct from its owners.
Question 2 A
stockholder has the right to vote in the election of the board of directors.
Question 3 The
acquisition of treasury stock by a corporation increases total assets and total
stockholders’ equity.
Question 4 Cash
dividends are not a liability of the corporation until they are declared by the
board of directors.
Question 5 A
detailed stockholders’ equity section in the balance sheet will list the names
of individuals who are eligible to receive dividends on the date of record.
ACC556 Financial Accounting for Managers
CHAPTER 12 EXERCISE
Question 1 The
statement of cash flows is a required statement that must be prepared along
with an income statement, balance sheet, and retained earnings statement.
True
False
Question 2 The
acquisition of a building by issuing bonds would be considered an investing and
financing activity that did not affect cash.
Answers:
True
False
Question 3 The
statement of cash flows
Answers:
must be
prepared on a daily basis.
summarizes the operating, financing, and
investing activities of an entity.
is another
name for the income statement.
is a
special section of the income statement.
Question 4 Generally,
the most important category on the statement of cash flows is cash flows from
Answers:
operating activities.
investing
activities.
financing
activities.
significant
noncash activities.
Question 5 Which
of the following transactions does not affect cash during a period?
Answers:
Write-off of an uncollectible account.
Collection
of an accounts receivable.
Sale of
treasury stock.
Redeeming
bonds before maturity.
ACC556 Financial Accounting for Managers
CHAPTER 13 EXERCISE
Question 1 Comprehensive
income includes all revenues, expenses, gains, losses, and dividends.
Answers:
True
False
Question 2 A
primary purpose of vertical analysis is to observe trends over a three-year
period.
Answers:
True
False
Question 3 Leverage
and return on equity are closely related.
Answers:
True
False
Question 4 Because
pro forma earnings are based on specific rules, these amounts are highly
reliable.
Answers:
True
False
Question 5 Which
of the following income statement figures would probably be the best indicator
of a company’s future performance?
Answers:
Total
revenues
Income from operations
Net income
Gross
profit
ACC556 Financial Accounting for Managers
CHAPTER 21 EXERCISE
Question 1 A
benefit of budgeting is that it provides definite objectives for evaluating
performance.
Answers:
True
False
Question 2 Effective
budgeting requires clearly defined lines of authority and responsibility.
Answers:
True
False
Question 3 Financial
budgets must be completed before the operating budgets can be prepared.
Answers:
True
False
Question 4 The
budgeted income statement indicates the expected profitability of operations
for the next year.
Answers:
True
False
Question 5 Why
are budgets useful in the planning process?
Answers:
They
provide management with information about the company's past performance.
They help communicate goals and provide a
basis for evaluation.
They
guarantee the company will be profitable if it meets its objectives.
They enable
the budget committee to earn their paycheck.
ACC556 Financial Accounting for Managers
CHAPTER 22 EXERCISE
Question 1 Management
by exception means that management will investigate areas where actual results
differ from planned results if the items are material and controllable.
Answers:
True
False
Question 2 Budget
reports provide the feedback needed by management to see whether actual
operations are on course.
Answers:
True
False
Question 3 The
manager of an investment center can improve ROI by reducing average operating
assets.
Answers:
True
False
Question 4 What
is budgetary control?
Answers:
Another
name for a flexible budget
The degree
to which the CFO controls the budget
The use of budgets in controlling operations
The process
of providing information on budget differences to lower level managers
Question 5 What
is the primary difference between a static budget and a flexible budget?
Answers:
The static
budget contains only fixed costs, while the flexible budget contains only
variable costs.
The static budget is prepared for a single
level of activity, while a flexible budget is adjusted for different activity
levels.
The static
budget is constructed using input from only upper level management, while a
flexible budget obtains input from all levels of management.
The static
budget is prepared only for units produced, while a flexible budget reflects
the number of units sold.
