Deck 1: Introduction to Managerial Accounting

Question 1

The accountant for Myra Lido deliberately deferred cash payments for business expenses in order to record a higher operating cash flow for the company. As long as the amount was not material, this would not be considered unethical behavior.

Answer 1

False

Question 2

Financial accounting prepares reports for internal purposes, whereas managerial accounting provides information to external stakeholders.

Answer 2

False

Question 3

Which of the following statements is true of management accounting?

A) The primary users of management accounting are the external stakeholders of a company.
B) Management accounting information is used to help managers plan and control their operations.
C) Management accounting information requires an external audit by an independent CPA.
D) Management accounting information must comply with Generally Accepted Accounting Principles.

Answer 3

B

Question 4

Comparing actual performance to previously budgeted amounts is part of the:

A) controlling function of managerial accounting.
B) planning function of managerial accounting.
C) reporting function of managerial accounting.
D) organizing function of managerial accounting.

Question 5

Managerial accounting includes the planning function. Which of the following items would be part of the planning function of a business's managerial accounting?

A) comparing actual performance to previously budgeted amounts
B) creating detailed budgets
C) implementing operational plans
D) evaluating results of operations

Question 6

The IMA standards of ethical practice require managerial accountants to maintain their professional competence.

Question 7

ERP systems can integrate all of a company's functions, departments, and data into a single system.

Question 8

A budget is a managerial accounting tool used in the planning process.

Question 9

How is the management of a company accountable to its employees?

A) The management must provide products that are safe and free of defects.
B) The management must provide a safe workplace.
C) The management must ensure that it earns a net positive return on its investments.
D) The management must ensure the business is environmentally responsible to its community.

Question 10

Management accounting reporting by a public firm is required to follow the rules of GAAP and guidelines of the Securities Exchange Commission.

Question 11

Financial statements prepared for investors and creditors often include forward-looking information because they make decisions based on a company's future prospects.

Question 12

Management of a company is accountable to ________ for obeying laws and paying taxes.

A) the natural environment
B) its asset vendors
C) the securities exchange
D) the government

Question 13

Financial reporting is typically much more detailed than managerial accounting.

Question 14

The IMA Standards of Ethical Practice include confidentiality, competence, credibility, and integrity.

Question 15

Management accounting information of a company is primarily used by:

A) its customers to understand the pricing of the product.
B) its creditors to understand the credibility of the business.
C) its employees to plan and control operations.
D) its investors to make their investment decisions.

Question 16

Managerial accounting focuses on providing information for internal planning and control.

Question 17

In which of the following ways is the management of a company accountable to its communities?

A) making timely interest payments to creditors and dividend payments to investors
B) ensuring the company's environmental impact is not harmful to its area of operations
C) providing a capital return on the shareholders' investment
D) repaying principal and interest to the suppliers

Question 18

Which of the following statements is true of financial accounting?

A) It provides information to investors needed for their investment decisions.
B) It provides forward-looking information needed for managing and delegating operations.
C) It focuses on detailed reports for parts of the company rather than the whole company.
D) It focuses on planning and controlling day-to-day operations.

Question 19

Which of the following is an objective of management accounting?

A) to generate financial statements of a company for tax reporting
B) to provide information to business managers to assist them in controlling their business
C) to provide information to shareholders to assist them with their investment decisions
D) to ensure that the reports produced for internal and external business purposes are GAAP compliant

Question 20

Management's accountability to its suppliers and vendors is to:

A) provide products to customers that are safe and free of defects.
B) obey laws and pay taxes timely.
C) provide a return on shareholders' investment.
D) make timely payments and comply with contract terms.

Question 21

Which of the following correctly describes just-in-time (JIT) inventory management?

A) It is a production approach that maintains surplus goods at each stage of manufacture.
B) It is an inventory purchase approach that seeks purchase discounts on buying large quantities.
C) It is a cost management approach that focuses on maintaining lean inventory levels.
D) It is an inventory approach which stockpiles raw materials to protect against supply interruptions.

Question 22

Which of the following is a philosophy designed to integrate all organizational areas in order to provide customers with superior products and services, while meeting organizational goals throughout the value chain?

A) Supply chain management
B) Just-in-time (JIT) management
C) Enterprise resource planning (ERP)
D) Total quality management (TQM)

Question 23

What is total quality management (TQM)?

A) a philosophy of supplying customers with superior products and services
B) an exchange of information with suppliers and customers to create efficient and effective processes
C) a software system that integrates a company's functions, departments and data into a single system
D) a system which speeds the transformation of raw materials into finished products

Question 24

You did not understand what the term accrual meant and failed to accrue the interest due at the end of the year on the company's bonds. Which of the IMA standards appears to have been violated here?

A) Integrity
B) Confidentiality
C) Competence
D) Objectivity

Question 25

Which of the following is true of just-in-time (JIT) inventory management?

A) It results in more storage and insurance cost.
B) It is a system in which the company produces product only after receiving an order.
C) It promotes surplus inventory to prevent production shut-down in case of supply interruptions.
D) It requires a surplus inventory of finished goods to ensure timely, or just-in-time, delivery to customers.

Question 26

The whole sequence of activities that add value to a company's products and services is called:

A) the value chain.
B) the planning process.
C) TQM production chain.
D) enterprise resource planning (ERP).

Question 27

Which of the following is one of the key standards of ethical practice published by the IMA?

A) Objectivity
B) Environmental sensitivity
C) Technicality
D) Confidentiality

Question 28

Unlike merchandising companies, income statements of service companies include cost of goods sold as a line item.

Question 29

Joshua is the accountant of Seria Inc. Seria has received a bulk order from an overseas client. As a result, the reported earnings of this year will be significantly higher than the estimates of financial analysts. Joshua tells this to one of his friends. Which of the IMA standards has Joshua violated?

A) Objectivity
B) Competence
C) Confidentiality
D) Technicality

Question 30

If Royal Ltd. purchases each unit of product X for $100 and can sell it in the market for $135, the selling price of the product for Royal would be $100.

Question 31

Which of the following is the primary focus of financial accounting?

A) providing information that managers need to make operational decisions
B) providing summarized information on operational results to investors and creditors
C) providing budgets for future periods
D) providing highly detailed information on product lines, regions, divisions, etc.

Question 32

Product costs, such as direct materials, are expensed in the period they were paid.

Question 33

Manufacturing businesses have inventory accounts, but merchandising businesses do not.

Question 34

Manufacturing businesses produce their own products, but merchandising businesses do not.

Question 35

________ is a philosophy of continuous improvement of products and processes.

A) Just-in-time (JIT) management
B) Enterprise resource planning (ERP)
C) Supply chain management
D) Total quality management (TQM)

Question 36

Selling and administrative expenses are subtracted from the cost of goods sold to obtain operating profit.

Question 37

Merchandising companies, like service companies, do not have a Cost of Goods Sold account.

Question 38

Which of the following is the primary objective of managerial accounting?

A) providing information that managers need to make operational decisions
B) providing historical data to investors and creditors
C) providing summarized results of operations
D) providing information to comply with laws and regulations of government bodies

Question 39

Which of the following describes a system in which suppliers deliver materials at the time they are needed and finished units are completed when customer orders need to be filled?

A) Supply chain management
B) Just-in-time (JIT) management
C) Enterprise resource planning (ERP)
D) Total quality management (TQM)

Question 40

An enterprise resource planning system (ERP):

A) is a cost management system in which a company produces products just in time to satisfy needs.
B) requires the implementation of total quality management.
C) integrates all worldwide functions, departments and data of a company into a single system.
D) cannot be implemented in service companies.

Question 41

For external reporting purposes, GAAP requires companies to treat period costs as assets.

Question 42

The income statement of a service company will most likely include:

A) salary expense.
B) factory overhead.
C) cost of goods sold.
D) direct materials.

Question 43

The balance sheet of a ________ company will show Work-in-Process Inventory as a line item.

A) manufacturing
B) merchandising
C) service
D) trading

Question 44

A company that uses labor, equipment, supplies, and facilities to convert raw materials into finished products is a:

A) merchandising company.
B) manufacturing company.
C) service company.
D) trading company.

Question 45

Service companies include companies that provide health care, communication, banking, and other important benefits to society.

Question 46

Partial income statements of Company A and Company B are provided below: $\begin{array}{|lr|l|lll|}\hline\text { Company A }&&&\text { Company B }\\\text { Revenue } & \$ 80,000 && \text { Revenue } & \$ 50,000 \\\text { Expenses: } & & & \text { Cost of Goods Sold: } & & \\\text { Utilities Expense } & \$ 5,000 & & \text { Beginning Inventory } & \$ 4,000 & \\\text { Salaries Expense } & 15,500 & & \text { Purchases and Freight In } & 23,000 & \\\text { Rent Expense } & 3,200 & & \text { Ending Inventory } & -5,500 \\\text { Total Expenses } & 23,700 &&\text { Cost of Goods Sold } &21,500\\\text { Operating Income } & \$ 56,300&&\text { Gross Profit }&\$28,500\\\hline\end{array}$ Which of the following statements is true?

A) Company A is a merchandising company.
B) Company B is a manufacturing company.
C) Company A is a manufacturing company.
D) Company A is a service company.

Question 47

Which of the following would appear as a line item on the income statements of both, a merchandiser and a manufacturer?

A) Direct Labor
B) Cost of Goods Manufactured
C) Direct Materials
D) Cost of Goods Sold

Question 48

The Work-in-Process Inventory account includes the:

A) goods that are ready to be sold.
B) goods that are partially completed.
C) goods that have been sold in the market.
D) goods that are damaged during production.

Question 49

Which of the following is most likely a service company?

A) a law firm
B) a car manufacturer
C) a fruit seller
D) a baker

Question 50

Which of the following formulas represents cost of goods sold for a merchandising business?

A) Beginning Inventory - Ending Inventory = Cost of Goods Sold
B) Purchases and Freight In - Ending Inventory = Cost of Goods Sold
C) Ending Inventory + Purchases and Freight In - Beginning Inventory = Cost of Goods Sold
D) Beginning Inventory + Purchases and Freight In - Ending Inventory = Cost of Goods Sold

Question 51

Product costs are expensed:

A) when the products are consumed or sold.
B) at the end of the accounting period they are incurred in.
C) when the products are transferred to Work-in-Process Inventory account.
D) when the market value of products goes above the recorded value.

Question 52

Which of the following is true of finished goods inventory?

A) Finished Goods Inventory is an account used by a manufacturer and includes completed goods that have not yet been sold.
B) Finished Goods Inventory is an account used by a merchandiser and includes completed goods that have not yet been sold.
C) Finished Goods Inventory is an account used by service companies in lieu of raw materials inventory.
D) Finished Goods Inventory is an account used by a manufacturer in lieu of raw materials inventory.

Question 53

Goods that have been started in the manufacturing process but are not yet complete are included in:

A) the Finished Goods Inventory account.
B) the Work-in-Process Inventory account.
C) the Raw Materials Inventory account.
D) the Cost of Goods Sold account.

Question 54

Crystal Inc. is a merchandiser of stone ornaments. It sold 15,000 units in 2015. The company has provided the following information: $$\begin{array} { | l | r | } \hline \text { Sales Revenue } & \$ 557,000 \\\hline \text { Purchases (excluding freight in) } & 300,000 \\\hline \text { Selling and Administrative Expenses } & 69,000 \\\hline \text { Freight In } & 15,000 \\\hline \text { Beginning Merchandise Inventory } & 45,000 \\\hline \text { Ending Merchandise Inventory } & 55,700 \\\hline\end{array}$$ How much is the gross profit for 2015?

A) $183,700
B) $304,300
C) $252,700
D) $257,000

Question 55

One of the primary activities of Rex Inc. is to purchase hats from Viva Inc. in Texas and sell them to its customers in Washington for a profit. It is likely that Rex is a:

A) manufacturing company.
B) hybrid company.
C) service company.
D) merchandising company.

Question 56

Which of the following is true of service companies?

A) All of service companies' costs are product costs.
B) Service companies modify and resell products they buy from manufacturers.
C) Revenues of service companies are only recorded on cash receipt.
D) Service companies carry no inventories of products for sale.

Question 57

Which of the following is true of product costs?

A) They are expensed in the period they are paid.
B) For external reporting, GAAP requires that they be expensed before the products are sold.
C) They are first recorded in an inventory account.
D) For merchandising companies, product costs do not include freight costs.

Question 58

Damsel Inc. is a large manufacturer of auto tires. Damsel has provided the following information: $$\begin{array} { | l | r | } \hline \text { Sales Revenue } & \$ 45,500 \\\hline \text { Beginning Finished Goods Inventory } & 1,500 \\\hline \text { Cost of Goods Sold } & 32,500 \\\hline \text { Cost of Goods Manufactured } & 35,000 \\\hline\end{array}$$ Calculate the amount of ending finished goods inventory reported in Damsel's balance sheet.

A) $10,500
B) $36,500
C) $4,000
D) $3,500

Question 59

For a manufacturing company, which of the following is a period cost?

A) Direct materials
B) Office rent
C) Wages expense of factory workers
D) Indirect materials

Question 60

The primary activity of manufacturing businesses is to purchase goods from a wholesaler and resell them.

Question 61

Wages and benefits of factory managers are considered as product costs.

Question 62

Excellent Company sells accounting textbooks. The following information summarizes Excellent's operating activities for 2015:
Required: Prepare Excellent Company's income statement for the year ended December 31, 2015.

Question 63

Simons Company sells plastic ware. The following information summarizes Simons' operating activities for 2015:
Prepare an income statement for Simons Company, a merchandiser, for the year ended December 31, 2015 using the format below:

Question 64

In a manufacturing firm, the salary of sales staff is an example of period cost.

Question 65

Manufacturing overhead includes indirect manufacturing costs, such as insurance and depreciation on the factory building.

Question 66

Wages and benefits of assembly line workers are period costs.

Question 67

The three categories of period costs are direct materials, direct labor, and manufacturing overhead.

Question 68

Wages and benefits of assembly line workers are included in manufacturing overhead.

Question 69

Manufacturing overhead includes all manufacturing costs, such as direct labor and direct materials.

Question 70

Best Company, a merchandiser, sells office supplies. The following information summarizes Best's operating activities during 2015:
$\begin{array}{|l|r|}\hline\text { Utilities Expense } & \$ 6,000 \\\hline \text { Rent for Store Expense } & 8,000 \\\hline \text { Sales Commissions Expense } & 4,500 \\\hline \text { Purchases of Merchandise } & 54,000 \\\hline \text { Inventory on January 1, 2015 } & 30,000 \\\hline \text { Inventory on December 31, 2015 } & 20,500 \\\hline \text { Sales Revenue } & 108,000\\\hline\end{array}$ Required: Prepare an income statement for Best Company for the year ended December 31, 2015, using the format below.
$$\begin{array} { | l | l | l | } \hline \text { Sales Revenue } &\quad\quad &\quad\quad \\\hline \text { Cost of Goods Sold } & & \\\hline \text { Beginning Inventory } & & \\\hline \text { Purchases } & & \\\hline \text { Cost of Goods Available for Sale } & & \\\hline \text { Ending Inventory } & & \\\hline \text { Cost of Goods Sold } & & \\\hline \text { Gross Profit } & & \\\hline \text { Selling Expenses } & & \\\hline \text { Sales Commissions Expense } & & \\\hline \text { Administrative Expenses } & & \\\hline \text { Rent Expense } & & \\\hline \text { Utilities Expense } & & \\\hline \text { Total Operating Expenses } & & \\\hline \text { Operating Income } & & \\\hline\end{array}$$

Question 71

Wages of factory janitors is considered non-manufacturing overhead, as these are not directly related to the manufacturing process.

Question 72

All costs incurred in the manufacture of final products are product costs.

Question 73

The cost of direct materials cannot easily be traced to the manufactured product, and therefore it is a component of manufacturing overhead.

Question 74

Product costs, such as factory overhead, should be treated as an asset until the product is sold.

Question 75

Indirect materials costs such as lubes and cleaning fluids are product costs.

Question 76

For a manufacturer, rent paid for an office building is an example of a period cost.

Question 77

Salary of a factory manager will be included in manufacturing overhead.

Question 78

Direct costs and indirect costs can be easily traced directly to a cost object.

Question 79

Indirect materials costs are included in manufacturing overhead.

Question 80

Amber Corporation has provided the following information of its operating activities for 2015:
Required: Prepare Amber's income statement for the year ended December 31, 2015. Use the format provided below: