Set 16: Managerial Accounting Basics
Focuses on the difference between product costs and period costs in a manufacturing
environment.
1. Which of the following is considered a "Product Cost"? a) CEO’s Salary
b) Sales Commissions
c) Factory Utilities
d) Advertising Expenses
2. "Direct Labor" is classified as both: a) A Period Cost and a Prime Cost
b) A Prime Cost and a Conversion Cost
c) A Period Cost and a Conversion Cost
d) Manufacturing Overhead and a Prime Cost
3. Manufacturing Overhead includes: a) Direct Materials and Direct Labor
b) Indirect Materials and Indirect Labor
c) Administrative Office Rent
d) Sales Department Depreciation
4. "Period Costs" are reported on the Income Statement as: a) Cost of Goods Sold
b) Inventory
c) Operating Expenses
d) Finished Goods
5. Which account is an inventory account for a manufacturing company? a) Prepaid
Rent
b) Work in Process
c) Accounts Payable
d) Retained Earnings
Set 16 Answer Key:
1. c) Factory Utilities. (Any cost occurring inside the factory is a product cost).
2. b) Prime Cost and Conversion Cost.
3. b) Indirect Materials and Indirect Labor.
4. c) Operating Expenses. (They are expensed in the period they occur).
5. b) Work in Process. (Manufacturers have Raw Materials, WIP, and Finished Goods).
Set 17: Inventory Valuation (FIFO, LIFO, & Average
Cost)
Focuses on the mathematical application of cost flow assumptions.
1. In a period of inflation (rising prices), which method results in the highest ending
inventory value? a) FIFO
b) LIFO
c) Weighted Average
d) Specific Identification
2. The "Weighted Average" cost per unit is calculated as: a) (Total Units / Total Cost)
b) (Cost of Beginning Inventory + Cost of Purchases) / Total Units Available
c) (Beginning Price + Ending Price) / 2
d) (Total Sales / Total Units)
3. Which inventory method most closely mimics the actual physical flow of goods
for a grocery store? a) LIFO
b) FIFO
c) Weighted Average
d) Dollar-Value LIFO
4. If Ending Inventory is overstated, what is the effect on Net Income? a) Net Income
is understated
b) Net Income is overstated
c) Net Income is not affected
d) Gross Profit is understated
5. The LIFO Conformity Rule requires that: a) If LIFO is used for tax purposes, it must
also be used for financial reporting.
b) All companies in the same industry must use the same method.
c) Inventory must be valued at market price.
d) FIFO and LIFO must be averaged.
Set 17 Answer Key:
1. a) FIFO. (The oldest, cheaper costs go to COGS; the newest, expensive costs stay in
inventory).
2. b) Total Cost of Goods Available for Sale / Total Units Available for Sale.
3. b) FIFO. (Items bought first are typically sold first to prevent spoilage).
4. b) Net Income is overstated. (Higher ending inventory leads to lower COGS, which
raises profit).
5. a) If LIFO is used for tax, it must be used for financial statements.
Set 18: The Flow of Financial Statements
Focuses on how the statements link together at the end of a period.
1. Which item links the Income Statement to the Statement of Retained Earnings? a)
Total Assets
b) Net Income
c) Dividends
d) Cash
2. The ending balance of Retained Earnings is reported on the: a) Income Statement
b) Balance Sheet
c) Statement of Cash Flows
d) Trial Balance only
3. To find the "Book Value" of a company (Equity), you look at the: a) Income
Statement
b) Balance Sheet
c) Cash Flow Statement
d) Bank Statement
4. If a company pays a dividend, it decreases: a) Net Income
b) Retained Earnings
c) Accounts Payable
d) Service Revenue
5. Which statement is usually prepared first in the accounting cycle? a) Balance
Sheet
b) Income Statement
c) Statement of Retained Earnings
d) Statement of Cash Flows
Set 18 Answer Key:
1. b) Net Income.
2. b) Balance Sheet (under the Stockholders' Equity section).
3. b) Balance Sheet.
4. b) Retained Earnings. (Dividends are not an expense and do not affect Net Income).
5. b) Income Statement. (You need Net Income to complete the other statements).
Set 19: Disposal of Plant Assets & Intangibles
Focuses on removing assets from the books and handling "Goodwill."
1. When an asset is fully depreciated, its Book Value is equal to its: a) Historical Cost
b) Salvage Value
c) Market Value
d) Replacement Cost
2. The entry to record the retirement of an asset with no salvage value includes: a) A
debit to the Asset account
b) A credit to Accumulated Depreciation
c) A debit to Accumulated Depreciation and a credit to the Asset account
d) A credit to Depreciation Expense
3. "Goodwill" can only be recorded in the accounting records when: a) A company
has a very good reputation.
b) An entire business is purchased for more than the fair value of its net assets.
c) A company develops a new successful product.
d) Advertising expenses increase.
4. Copyrights and Patents are examples of: a) Tangible Assets
b) Current Liabilities
c) Intangible Assets
d) Natural Resources
5. Research and Development (R&D) costs are typically: a) Capitalized as an asset.
b) Expensed as incurred.
c) Amortized over 40 years.
d) Ignored.
Set 19 Answer Key:
1. b) Salvage Value.
2. c) Debit Acc. Dep.; Credit Asset. (This removes both balances from the books).
3. b) An entire business is purchased.
4. c) Intangible Assets.
5. b) Expensed as incurred. (Due to high uncertainty of future benefits).
Set 20: Advanced Cash Flow & Non-Cash Items
Focuses on complex classifications in the Statement of Cash Flows.
1. How is the "Depreciation Expense" handled in the Operating Section using the
indirect method? a) Subtracted from Net Income
b) Added back to Net Income
c) Ignored as it is a non-cash item
d) Reported in the Investing Section
2. Which of the following is a "Non-cash Investing and Financing Activity"? a) Sale of
land for cash
b) Issuance of common stock to purchase a building
c) Payment of interest on a note
d) Collection of a loan principal
3. Where are non-cash investing/financing activities reported? a) In the Operating
section
b) In the Financing section
c) In a separate schedule or note to the financial statements
d) They are not reported anywhere
4. An increase in "Accounts Payable" is: a) Added to Net Income in the Operating
Section
b) Subtracted from Net Income in the Operating Section
c) A Financing Activity
d) An Investing Activity
5. Which of the following is an "Investing Activity"? a) Issuing bonds
b) Purchasing Treasury Stock
c) Loaning money to another entity
d) Paying taxes
Set 20 Answer Key:
1. b) Added back to Net Income. (It reduced Net Income but didn't cost any cash).
2. b) Issuance of stock for a building. (No cash changed hands).
3. c) In a separate schedule or footnote.
4. a) Added to Net Income. (An increase in payables means we kept cash instead of
paying).
5. c) Loaning money to another entity. (Lending is an investment; borrowing is financing).
1.