Financial and Managerial Accounting - D196 Practice Exams, Exams of Management Accounting

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Financial and Managerial Accounting - D

Practice Exams

Accounting plays a vital role in the decision-making process. Which action is the first step in the decision-making process? - ANS-Identify the issue. Identifying the issue is the first step in the decision- making process.

The money that a company needs to buy its land, pay its employees, and buy its supplies is called capital. What are the potential sources of capital for a business? - ANS-Investors, creditors, and retained business earnings

True or False: Accountants measure and communicate the results of business activities. - ANS-True

Which primary area of accounting generates reports for internal users? - ANS-Management accounting- generates reports for internal users, such as budgets and cost analyses.

Which group uses financial information to evaluate whether a company will be able to repay a loan? - ANS-Lenders -

Lenders are interested in whether or not a company will be able to repay a loan, so they use financial information to analyze the company's financial ability to do so.

Which of the primary financial statements reports the resources, obligations, and owner's equity of a company? - ANS-Balance sheet- Balance sheet reports the resources of a company (the assets), the company's obligations (the liabilities), and the owners' equity, which represents the difference between what is owned (assets) and what is owed (liabilities).

Statement of cash flows

What group of people make up the FASB? - ANS-Auditors, corporate accountants, analysts, and accounting academics. The FASB is not directly controlled by the SEC, although SEC input is extremely important to the FASB in its deliberations.

What is the role of the GASB in setting accounting standards? - ANS-a private-sector organization that establishes accounting and financial reporting standards for U.S. state and local governments.

What is the role of the IASB in regulating accounting standards? - ANS-Establish international accounting standards. A private organization based in London. Currently, does not have legal authority to set accounting standards for U.S. companies,

How is it possible for an accountant to intentionally deceive financial statement users and yet still technically be in compliance with generally accepted accounting principles (GAAP)? - ANS-There is flexibility inherent in the assumptions underlying the preparation of financial statements. The flexibility inherent in the assumptions underlying the preparation of financial statements means that an accountant can intentionally deceive financial statement users and yet still technically be in compliance with GAAP.

In what way do accountants have an economic incentive to conduct themselves ethically? - ANS-The value of the information produced by accountants is related to the confidence that users have in the reliability of that information.Accountants are in the "trust" business. If users of the financial information that is being prepared do not have confidence in, or do not trust, the information that is being provided to make business decisions, then the role of the accountant becomes far less important. If accountants and the accounting system are not reliable and trustworthy, then the value of the information they produce is lower.

What is the role of the IRS - ANS-To ensure that tax filing complies with financial accounting standards.

What is the purpose of Financial reports? - ANS-Used by individuals and organizations that have an economic interest in the business. They provide information about the financial performance of a company.

Bank statements

Which event represents a transaction recorded as part of the financial accounting cycle? - ANS-The sale of a product for cash or on account

A company sells a product to a customer on account. Which part(s) of the accounting equation does this particular transaction change? - ANS-Both assets and owners' equity

What is an example of an internal transaction? - ANS-An employee is transferred from one department to another.

What is the first step of the financial accounting cycle - ANS-Analyze transactions

Which item is a liability? - ANS-Inventory

Buildings

Cash

Mortgage

What is an example of an external transaction that should be recorded as an external transaction? - ANS-Purchases of inventory from suppliers

How should you ensure that the accounting equation remains in balance? - ANS-Add up the balances in all of the asset accounts and compare them to the sum of all the liability and owners' equity accounts

What is the effect of borrowing money from the bank for the next accounting period on the company's books? - ANS-Cash (an asset) and a liability account both increase.

Which account is an example of a liability? - ANS-Inventory

Accounts receivable

Equipment

Accounts payable

Which of the primary financial statements reports the amount of cash collected and paid out by a company? - ANS-Statement of cash flows

What is the name for the authoritative set of accounting standards in the United States? - ANS-GAAP This stands for generally accepted accounting principles.

Which statement is a correct description of the IASB? - ANS-It establishes international accounting standards.

Which action is part of the financial accounting cycle? - ANS-Summarizing financial information in financial statements

What is owners' equity? - ANS-The remaining claim to the assets of a business after liabilities have been deducted

Most businesses have a systematic method for analyzing transactions and collecting and recording transaction-related information. This transformation process is which part of accounting? - ANS-The accounting cycle

What is an example of collecting, analyzing, and summarizing accounting information? - ANS-Gathering checkbook information

Which accounting transaction should be recorded in the books and the records of a company? - ANS- Purchasing new equipment for the company

What is a gain? - ANS-Making money from an activity outside the normal activities of a business

What is an income statement? - ANS-A report of the revenues and expenses of a company during a period

Which statement best characterizes the elements and purposes of a statement of retained earnings? - ANS-Portrays the accumulated profits or losses of a company at a point in time.

What activity is an investing activity? - ANS-Buying buildings

Which of these activities is an operating activity? - ANS-Selling goods

What is a statement of cash flows? - ANS-A report of the operating, investing, and financing cash flows of a company over a period of time

Why do the notes to the financial statements contain additional information about summary totals? - ANS-Because one summary number in the financial statements represents literally thousands of individual items

Why do the notes to the financial statements contain a summary of significant accounting policies? - ANS-Because accounting involves making assumptions, estimates, and judgments

Information about accounting policies and practices, including assumptions, estimates, and judgments, are included in which element of the financial statements? - ANS-The notes to the financial statements

What is the purpose of a classified balance sheet? - ANS-A classified balance sheet distinguishes between current and long-term assets.

Which item would be classified in the owners' equity section of the balance sheet? - ANS-Retained earnings

What is retained earnings - ANS-Retained earnings is an owners' equity item representing the cumulative amount of profits that the owners have kept in the business in order to buy assets. So, retained earnings is a source of money to buy assets.

calculate gross profit - ANS-Sales − cost of goods sold

calculate operating income - ANS-Sales − cost of goods sold − operating expenses

What is the purpose of the notes to the financial statements? - ANS-The notes present the assumptions needed to help explain financial statements.

What is the definition of financial statement analysis? - ANS-Examining both the relationships among financial statement numbers and the trends in those numbers over time

How is a common-size income statement created? - ANS-By dividing all income statement amounts for a given year by sales for that year

What is the purpose of performing horizontal analysis of financial statements? - ANS-To highlight trends that may be occurring in the company over time

What is the definition of vertical analysis of financial statements? - ANS-Displaying each line item as a percentage of another for comparison to other companies in the industry

How does vertical financial statement analysis inform your understanding of a company's performance?

• ANS-It tells you what questions you need to be asking about a company's performance.

What factors below contribute to a company's pattern of cash collections? - ANS-Industry, firm size, and the firm's credit policies

In what way does a cash budget allow a manager to take action now? - ANS-It allows the manager to identify cash shortages in advance.

According to a company's cash budget, when can management plan to repay the company's loans? - ANS-When excess cash is available

What are the principal sources of a company's cash inflows? - ANS-Cash sales and the collection of cash from prior credit sales

For what purpose are column charts used? - ANS-To compare different categories of items or the same category over time

What are the principal sources of a company's cash inflows? - ANS-Cash sales and the collection of cash from prior credit sales

The master budgeting process begins with which forecast? - ANS-A forecast of sales

The sales and administrative expense budget includes which expenses? - ANS-All expenses besides production-related expenses

The manufacturing overhead cost budget includes which manufacturing costs? - ANS-Both fixed and variable manufacturing overhead costs

The production budget supplies the information required for which other budget in the master budgeting process? - ANS-Direct materials budget, direct labor budget, and manufacturing overhead budget.

Segment managers should be evaluated on which items included in a budget? - ANS-Only the items they can control or influence

What is the segment margin? - ANS-The difference between segment revenue and direct segment costs

Which items does a manager have control over in a cost center? - ANS-Costs only

Which items does a manager have control over in a profit center? - ANS-Costs and revenues

What is the concept behind responsibility accounting in management accounting? - ANS-A manager should be evaluated only on factors he or she can directly control.

What is the first thing an accountant should do to develop a master budget? - ANS-Prepare a sales budget

Two of the three factors to be considered in preparing a production budget include the desired amount of ending inventory and the amount of inventory already on hand in the beginning inventory.

What is the third factor required to prepare a production budget? - ANS-Projected sales volume

How is a cost variance computed for a corporate budget? - ANS-A cost variance is the difference between the actual cost and the budgeted cost.

What factors should a production supervisor consider in assembling her production budget? - ANS- Projected sales, desired ending inventory, and amount of beginning inventory

What should a manager keep in mind as she develops a measure to evaluate his performance? - ANS- only controllable costs in the measure.

A profit center manager has responsibility for - ANS-Revenues and controllable costs

Which statement about managerial accounting data is true? - ANS-Managerial accounting data are created based on competitive needs that are unique to the organization.

Which characteristic is a unique feature of management accounting information? - ANS-Management accounting information is composed of both financial and nonfinancial data.

Which group represents the primary users of managerial accounting information? - ANS-Managers

Company managers are important users of managerial accounting information. What are the three primary functions of company managers? - ANS-Planning, controlling, and evaluating

Which statement correctly distinguishes the uses of financial accounting information from the uses of managerial accounting information? - ANS-Financial accounting information is prepared according to a generally accepted set of rules.

Which activity involves the process of tracking the actual performance of a company? - ANS-Controlling

What does long-run planning include? - ANS-Strategic planning and capital budgeting

Which type of business is a typical retailer? - ANS-Merchandising business

Which types of costs does a merchandiser have? - ANS-Both product and period costs

Which types of costs does a manufacturer have? - ANS-Both product and period costs

Which type of business purchases finished goods for resale? - ANS-Merchandising

Which statement identifies a difference between managerial and financial accounting? - ANS- Managerial accounting has substantial competitive value, while financial accounting is not a competitive tool.

What is a characteristic of managerial accounting systems that is not also a characteristic of financial accounting systems? - ANS-Managerial accounting includes budget and forecast data

Lucas works for a professional consulting firm. He has been asked to compare his firm's financial performance to the performance of another firm. Which company should Lucas use as a benchmark for his company's performance - ANS-A consulting firm

Maria just started a cosmetics company. She purchases makeup and nail polish from a wholesale distributor and sells these products on social media. Which costs will Maria's new company have? - ANS- Both product costs and period costs

Jack just started a business that develops websites for other businesses. Which type of organization is Jack's new business? - ANS-Service Organization

What is the sequence of the flow of costs through a manufacturing operation? - ANS-Purchase raw materials, transfer raw materials to production, add direct labor and manufacturing overhead costs, transfer the cost of completed goods to finished goods inventory, sell goods and transfer cost to cost of goods sold.

What costs are included in manufacturing overhead? - ANS-All manufacturing costs that are not classified as direct materials or direct labor

What is work-in-process inventory? - ANS-All material on the factory floor that is not yet completed

Baby Jude Company manufactures car seats. Your colleague works in the sales and marketing department, and is trying to understand the differences between a product and a period cost for Baby Jude Company including examples for both. Which item is a period cost for Baby Jude Company? - ANS- Wages of the janitors in the executive office building

Yoshida Company manufactures cell phones. Which item is a product cost for Yoshida Company? - ANS- Bonuses paid to the phone assemblers who work on the production line

Leilani and Diego are discussing different types of businesses. They agree that, in terms of cost flows, there are many similarities between a manufacturer of cars, such as General Motors, and a consulting company, such as McKinsey. However, they also agree that there is one very important difference in the costs being incurred by General Motors and McKinsey. What is the important difference in the costs of GM as compared to McKinsey? - ANS-GM likely has relatively high materials costs, whereas the materials costs for a McKinsey are relatively low.

Which statement is true with respect to fixed and variable costs? - ANS-A fixed cost is fixed in total and decreases per unit as the number of units increases.

What is the relevant range? - ANS-The range of volume over which the selling price per unit is expected to increase

Which statement below is true with regard to variable costs? - ANS-Total variable costs change in relationship to the volume of activity.

Which statement below is true with regard to fixed costs? - ANS-Total fixed costs do not change in total within a relevant range of activity.

Why do companies allocate overhead costs based on estimated overhead numbers instead of actual numbers? - ANS-Because overhead costs must be allocated beginning the very first day of the period, but the actual numbers not available until the end of the period

What must be true of a direct cost? - ANS-It is a cost traceable to a specific business unit.

What must be true of an indirect cost? - ANS-It is a cost that cannot be traced to a specific business unit or product.

If overhead is underapplied during a period, which statement below is true? - ANS-The total cost of goods sold will be understated.

Which example correctly shows how contribution margin analysis is used by management in making business decisions? - ANS-Contribution margin analysis helps management evaluate whether to continue selling a product.

Which statement is true at the break-even point? - ANS-Total revenues equal total costs.

What is true if the quantity sold for a product line is below the break-even point? - ANS-The product line is operating at a loss.

What are differential costs? - ANS-Future costs that change as the result of a decision

What are sunk costs? - ANS-Past costs that cannot be changed by a current decision

What is an example of an indirect cost in a hospital? - ANS-Utility costs for the hospital building

How is the predetermined overhead rate calculated for a new product line? - ANS-Estimated overhead costs divided by estimated level of activity

Which statement accurately describes managerial and financial accounting data? - ANS-Managerial accounting data are created based on competitive needs that are unique to the organization.

What is process costing? - ANS-A method of product costing in which costs are accumulated by process and averaged over all products made during a period

For some production processes, job order costing is the correct production costing system to use. With other production processes, process costing is more appropriate. For which product is process more appropriate? - ANS-Manufacturing identical residential refrigerators

Four tax consulting companies serve very different sets of customers. Which of these four tax consulting companies is most likely to use a process system in determining the cost of each customer engagement?

• ANS-A company that serves tax customers who are middle-income individuals who all have basically the same tax issues

What is the most common sequence of the flow of costs through a job order costing system? - ANS- Purchase raw materials, transfer raw materials to production, add direct labor and manufacturing overhead costs, transfer the cost of completed goods to finished goods inventory, sell goods and transfer cost to cost of goods sold.

What is included in the direct materials cost? - ANS-The cost of raw materials that are used directly in the manufacture of products

Correct! Direct materials include the cost of

What is manufacturing overhead? - ANS-All manufacturing costs that are not classified as either direct materials or direct labor

Sophie has recently learned about activity-based costing (ABC). Sophie has determined that using an ABC overhead allocation system would result in basically the same pattern of overhead allocation as she is currently getting with her traditional system based on direct labor hours. Should Sophie go ahead and install an ABC system anyway? - ANS-No. The cost in terms of time and money would not be worth it.

In an ABC system, how are the costs belonging to a cost pool identified? - ANS-By carefully analyzing what activities cause the need for each specific overhead cost

What is a cost driver? - ANS-A collection of overhead costs associated with a specific overhead cost activity

In an ABC system, what is a cost pool? - ANS-The collection of overhead costs associated with a specific overhead cost activity

What is the appropriate situation in which to use process costing? - ANS-When a company produces a large volume of products using a series of uniform processes

Companies that use process costing do not specifically identify the costs associated with each job or order being produced. Instead, these companies compute costs on a different basis. What is this basis? - ANS-Amount of cost associated with work done for a particular period of time

The amount of work actually done in a process costing center for the period includes all units started and completed during the period. In addition, other work is included in the quantification of the work done during the period. What other work is included - ANS-The amount of work done to complete the beginning work-in-process inventory and the amount of work done to start the ending work-in-process inventory

There are three general types of overhead cost activities in an ABC system. What are those three general types of activities? - ANS-Unit-level, batch-level, and product-line

How is an activity rate computed in an ABC system? - ANS-Cost pool divided by number of cost driver events

For some production processes, job order costing is the correct production costing system to use. With other production processes, process costing is more appropriate. For which process is process costing more appropriate? - ANS-Producing identical cans of paint