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D196- Principles of Financial and Managerial Accounting
EXAM QUESTIONS WITH ACTUAL CORRECT ANSWERS
CURRENTLY TESTING

bookkeeping - ANSWER-day to day keeping of transcations

steps of decision making - ANSWER-identify issue
gather information
identify alternatives
select option that most likely results in desired objective

accounting - ANSWER-analysis of events
record and report financial effects of business activities

where does capital come from (3) - ANSWER-investors
creditors(lenders)
business itself (from earnings retained)

2 main types of accounting - ANSWER-financial and managerial

managerial accounting - ANSWER-gather and analysis of information for internal use and decision
making
...
summary of a business

what does managerial accounting review - ANSWER-product cost, breakeven analysis, budgeting,
performance analysis, outsource production

what does financial accounting review - ANSWER-credit analysis, financial health, estimate value of the
company

examples of external financial reports for financial accounting - ANSWER-annual report, financial
statement, balance sheet, income statement, statement of cash flow

balance sheet - ANSWER-reports assets and liabilities
...

list as of a point in time
...
need current income, existing
obligations, existing assets, payroll stub, tax return, monthly payments, bank stmts

investor - ANSWER-buys into your company
...


establishes financial accounting and reporting standards for private sector companies
1 of the two boards that make up GAAP

gasb- what does it stand for, who are they, what do they do - ANSWER-governmental accounting
standards board
sets accounting and financial reporting standards for state and legal governments
...
provides investors with full and fair information about publicly traded
companies
...
made up of members from many countries

aicpa - ANSWER-american institute of certified public accountants
administers the cpa exam
...


role and purpose of accounting - ANSWER-accumulate and report on financial information about
performance, financial position, cash flow of a business
...


balance sheet equation - ANSWER-assets = liabilities + owners equity

what are assets and examples - ANSWER-what they own or control that will provide probable future
benefits
cash, accts receivable, inventory, buildings, land
...
obligations that require future sacrifice
...

statement of income
...


equation for net income - ANSWER-net income= revenues - expenses

does revenues increase or decrease net assets - ANSWER-increase

does expenses increase or decrease net assets - ANSWER-decrease

what is revenue - ANSWER-amount of assets created from sale
...

wages, utilities, wholesale cost

if revenue exceeds expenses what happens - ANSWER-you get net income

if revenue is less than expenses paid, what happens - ANSWER-net loss

how to find net income or net loss - ANSWER-revenue- expenses= if + net income, if - net loss

gross profit and loss - ANSWER-difference between sales and cost of good sold
...

sales- cost of goods

operating income and equation - ANSWER-day to day basis
sales- cost of goods sold- operating expenses

non operating expenses - ANSWER-interest and income taxes
no connection with specific nature operating business

EPS definition and equation - ANSWER-earnings per share
net income/ outstanding number of shares of stock

gains - ANSWER-making money from activity outside natural activities of busines

statement of cash flow - ANSWER-how cash changed from beginning to end and why cash in(receipts)
and cash out(payments) from operating, investing, financing

operational activity; inflow and outflow - ANSWER-day to day activities
operation cash inflow selling goods, providing services,

operation cash outflow wages, utilities tax

investing activity; inflow and outflow - ANSWER-inflow selling buildings, selling land
outflow buying buildings and land

financial activity; inflow and outflow - ANSWER-inflow borrowing $, receiving investments from owners
outflow repaying loan, dividends,

cash inflow - ANSWER-receiving cash investments form owners, cash from bank when borrowing $, cash
from customers, cash from sale of old machines, buildings, etc

cash outflow - ANSWER-paying to buy new machines, buildings, paying employee wages, suppliers for
inventory purchases, interst on loans, principal on loans, dividends

stmt of retained earnings - ANSWER-accumulated profit and loss since business started
...
from one accounting period to the next
...
retained earnings + net income for period - dividends paid during

what does sec do - ANSWER-monitors securities market and financial disclosures

form 10k, what is it, where is it found, how often - ANSWER-annual filing, tells what the business does
and products and services sold/offered, risk of company,
properties owned, legal proceedings, mngmt discussion fo how company is doing and future outlook,
financial stmts,
file w/i 60 days of fiscal year
sec website

form 10q - ANSWER-quarterly unaudited financial reports covering the most current quarter
filed quarterly

cik- what does it stand for and what is it - ANSWER-central index key
unique indentifying number for each company in sec EDGAR system

when looking at a balance sheet, what is used for property, current market value or original market
value - ANSWER-original market value

current vs long term format - ANSWER-current typically = within a year
long term typically = more than a year

what is a classified balance sheet - ANSWER-list everything by current and long term
...

predicts how the compnay will do in the future compared to other companies in same industry

common size financial stmts and types - ANSWER-dividing one number by another to get a percentage
horizontal and vertical

horizontal analysis - ANSWER-year to year
...
typically total revenue

for balance sheet, what is equations for vertical analysis - ANSWER-/ all of numbers by total assets
(typically biggest number)

how many years of income stmts and balance sheets does sec require - ANSWER-3 years of income stmt
2 years of balance sheets

how is each amount calculated in a comon size income statement - ANSWER-each amt is expressed as a
percentage of sale for the year

is revenue cash or sales - ANSWER-sales

purpose of an income statement - ANSWER-shows results of operations of a company over a period of
time

which is an expense: cash, accounts payable, cost of goods sold - ANSWER-cost of goods sold

what is the definition of an expense - ANSWER-amount of assets consumed through business

which group establishes financial accounting rules in us - ANSWER-fasb- financial accounting standards
board

what is the impact of expenses on the account equation - ANSWER-expenses decrease owners equity

which types of account are accounts pyble and notes pyble examples of - ANSWER-liability

how is gross profit computed - ANSWER-sales minus cost of goods sold

what is accounts payable - ANSWER-the amount owed by a company that puchased goods or services
from a supplier on credit

forecasting inflow/outflow - ANSWER-1st step in determining if company will experience cash shortage
or surplus in future

budgeting cash receipts - ANSWER-accounts receivable, allows forecasting cash receipts and develop
cash budget which allows company to anticipate $ needs

cash budget - ANSWER-short term schedule of expected cash inflow and outflow during period

who needs a budget more: start up company or a well established company - ANSWER-a start up
company

budgeting - ANSWER-estimating how much revenue will be received or how many products will be sold
& determining how much production must occur to meet that demand

Master budget begins with what - ANSWER-sales budget

sales budget - ANSWER-what are we going to sell; start budget; forecasting sales, hardest part of the
budgeting bc all other budgets follow this one
...


production budget- what is and equation - ANSWER-how are we going to pay for forecasted sales, how
many workers needed, etc
...
raw
materials we have and how much more we need
rm needed this period + rm needed at end -rm on hand at start= how much more we need(y)
x* how many units needed to make it - beginning inventory

direct labor budget - ANSWER-schedule of direct labor requirements for budget period
...

supplies by office staff, salaries
...


cash payments to suppliers equation - ANSWER-(current period pymts * current period pymt rate) +
cash paid on prev period purchases

budget layers - ANSWER-sales budget --> production budget --> direct materials budget --> direct labor
budget --> manufacturing overhead budget --> sell and admin expense budget

manufacturing overhead budget fixed or variable - ANSWER-both fixed and variable overhead cost
...


What is the label given to the quantity computed as estimated overhead costs divided by estimated
level of activity? - ANSWER-Predetermined overhead rate

Which statement is true with respect to activity-based costing (ABC) systems - ANSWER-An ABC system
allocates overhead based on multiple activities
...


How is the production cost per unit computed in a process costing system - ANSWER-Amount of total
production cost divided by the number of units completed during a particular period of time

For which production process is process costing the appropriate costing method to use? - ANSWERRefining gasoline in a petroleum facility

Which overhead allocation method should be used for a business that mass-produces breakfast cereal? ANSWER-Process costing

What is the correct sequence for the flow of costs through a job order costing system - ANSWER-Raw
materials inventory, work-in-process inventory, finished goods inventory, cost of goods sold

Which type of company cannot use job order costing - ANSWER-Petroleum refining plant

year to year calculation - ANSWER-=(year 2-year 1)/year one

% sales equation - ANSWER-=each row/largest number(typically net sales)

product cost - ANSWER-all cost incurred inside factory
...

balance sheet

period cost - ANSWER-all cost incurred by company outside factory
...
ceo salary, admin personnel cost, marketing and sales cost,

gross profit equation - ANSWER-sales revenue-cost of goods sold

operating income equation - ANSWER-sales rev- cost of goods sold - operating expenses

net income equation - ANSWER-non operating rev + operating income - tax

cvp - ANSWER-cost - volume - profit

examples of variable cost - ANSWER-food, cooks, supplies, things that increase or decrease depending
on the volume of sells

examples of fixed - ANSWER-rent, insurance, interest
...
like large
steps

mixed cost - ANSWER-both variable and fixed cost
ex/ water bill
...


relevant range - ANSWER-if activity level increases or decreases significantly, cost relationship will
probably change
ex/ to produce 1-2000 cars fixed cost are $2000 but if 2001-5000 cars are being produced, fixed cost
increase to 2500
...

if rent is 1000 and only sold one car
...
rent was 200 fixed cost per unit totaling 1000

direct vs indirect - ANSWER-direct- what are the direct cost
...

ex/ going to a bball game- opportunity cost= could have received a better grade on exam tmw if used
that time to study instead

process for accounting for manufacturing overhead - ANSWER-before year, estimate
during year, record actual - man
...

during year- record applied- amt of man
...

at end of year- compare actual and applied
...
margin
contribution margin is used to pay fixed cost
...


variable cost ratio - ANSWER-variable cost per unit / sales cost per unit

variable cost per unit equation - ANSWER-variable cost per unit X # of units sold

contribution margin ratio - ANSWER-total sales rev - cost to make it / total sales rev

contribution margin per unit - ANSWER-price per unit - variable cost per unit

How does an investment institution, such as a mutual fund, facilitate the circulation of money in the
economy? - ANSWER-By providing individuals and firms access to financial markets to buy or sell
financial security

Which type of economic indicator is used by governments and policymakers to implement or alter
policies in an effort to avoid or minimize the effects of an economic downturn? - ANSWER-Leading
indicator

A financial manager at a company is trying to determine whether to issue new stocks or new bonds to
cover the costs of a project the company is doing the next year
...


How is inflation calculated - ANSWER-Inflation is calculated by determining the rate at which the
average price level of particular goods and services increases over a period of time in an economy
...

Which risk management technique is this financial advisor suggesting? - ANSWER-Risk diversification

Which type of ratio should be used to examine the cost efficiency of a firm's production - ANSWERprofitability ratio

Which action will increase the return on equity of a firm? - ANSWER-Increasing the asset usage
efficiency of the firm

A company she has invested in, Quiet Flag Industries, just released its annual report
...
The company plans to implement a new
factory that will increase production and resulting sales by 20%
...


Which term refers to the metrics and calculations that use tools such as net present value (NPV),
internal rate of return (IRR), and profitability index (PI) to evaluate investments? - ANSWER-Capital
budgeting criteria

What would profitability index (PI) be useful for? - ANSWER-Determining whether a firm should invest in
projects with different initial outlays

How do bond payments to investors differ from stock payments to investors? - ANSWER-Bond payments
are fixed, and stock payments are variable

The lowest rate of return is required by which type of investor or lender? - ANSWER-Bank

Quiet Flag Industries has a large piece of land worth $250,000 that it is considering using for a miniature
golf business
...


What is the effect of debt financing on a firm's income? - ANSWER-Debt interest payments reduce
taxable income

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