FINANCIAL AND MANAGERIAL
ACCOUNTING FOR MBAS, 6TH
EDITION BY EASTON, HALSEY, AND
MCANALLY.
the answers and detailed rationales are provided immediately following
each section.
Part I: True or False (20 Questions)
Indicate whether the statement is true or false. Explain why false
statements are incorrect in 1 sentence.
1. The primary purpose of the statement of cash flows is to report
the profitability of a company over a period of time.
2. According to the textbook, an increase in treasury stock is
reflected on the statement of stockholders’ equity.
3. A company with a high Return on Assets (ROA) necessarily has a
high Return on Equity (ROE) due to the accounting equation
balancing.
4. The operating cycle of a company is the time it takes to purchase
goods, sell them, and collect cash from customers.
,5. Managerial accounting information is primarily focused on
external reporting requirements mandated by the SEC.
6. In cost-volume-profit (CVP) analysis, the contribution margin
ratio increases as total fixed costs increase.
7. Activity-based costing (ABC) tends to assign overhead more
accurately than traditional volume-based costing methods.
8. A company that has a high financial leverage (FLEV) is always
considered less risky because it maximizes shareholder returns.
9. Unearned revenue is considered a liability on the balance sheet
until the service is performed or goods are delivered.
10. According to the revenue recognition principle, revenue
should be recorded only when cash is received to ensure
verifiability.
11. Goodwill is an example of a current asset on the balance sheet.
12. In the statement of cash flows, the purchase of equipment
is classified as a financing activity.
13. The balanced scorecard approach evaluates company
performance using only financial metrics like ROI and Residual
Income.
14. A favorable variance always indicates that a manager
performed exceptionally well.
15. The master budget is typically static and does not change
after the planning period begins, regardless of actual sales
volume.
, 16. For a manufacturing company, "Direct Labor" is considered a
period cost, not a product cost.
17. The higher the asset turnover ratio, the more efficiently a
company uses its assets to generate sales.
18. If a company’s "Spread" (RNOA - Borrowing Cost) is
negative, financial leverage will decrease ROE.
19. Stock dividends and stock splits both cause a reduction in
the total balance of Retained Earnings.
20. The internal rate of return (IRR) method for capital
budgeting assumes that cash flows are reinvested at the
company’s cost of capital.
Part II: Multiple Choice (40 Questions)
Select the best possible answer for each question.
21. Which of the following best describes the accounting
equation?
a) Assets = Liabilities - Equity
b) Assets = Liabilities + Equity
c) Equity = Assets + Liabilities
d) Liabilities = Assets + Equity
22. Which group would likely be least interested in the financial
statements of a large public company?
a) Shareholders
ACCOUNTING FOR MBAS, 6TH
EDITION BY EASTON, HALSEY, AND
MCANALLY.
the answers and detailed rationales are provided immediately following
each section.
Part I: True or False (20 Questions)
Indicate whether the statement is true or false. Explain why false
statements are incorrect in 1 sentence.
1. The primary purpose of the statement of cash flows is to report
the profitability of a company over a period of time.
2. According to the textbook, an increase in treasury stock is
reflected on the statement of stockholders’ equity.
3. A company with a high Return on Assets (ROA) necessarily has a
high Return on Equity (ROE) due to the accounting equation
balancing.
4. The operating cycle of a company is the time it takes to purchase
goods, sell them, and collect cash from customers.
,5. Managerial accounting information is primarily focused on
external reporting requirements mandated by the SEC.
6. In cost-volume-profit (CVP) analysis, the contribution margin
ratio increases as total fixed costs increase.
7. Activity-based costing (ABC) tends to assign overhead more
accurately than traditional volume-based costing methods.
8. A company that has a high financial leverage (FLEV) is always
considered less risky because it maximizes shareholder returns.
9. Unearned revenue is considered a liability on the balance sheet
until the service is performed or goods are delivered.
10. According to the revenue recognition principle, revenue
should be recorded only when cash is received to ensure
verifiability.
11. Goodwill is an example of a current asset on the balance sheet.
12. In the statement of cash flows, the purchase of equipment
is classified as a financing activity.
13. The balanced scorecard approach evaluates company
performance using only financial metrics like ROI and Residual
Income.
14. A favorable variance always indicates that a manager
performed exceptionally well.
15. The master budget is typically static and does not change
after the planning period begins, regardless of actual sales
volume.
, 16. For a manufacturing company, "Direct Labor" is considered a
period cost, not a product cost.
17. The higher the asset turnover ratio, the more efficiently a
company uses its assets to generate sales.
18. If a company’s "Spread" (RNOA - Borrowing Cost) is
negative, financial leverage will decrease ROE.
19. Stock dividends and stock splits both cause a reduction in
the total balance of Retained Earnings.
20. The internal rate of return (IRR) method for capital
budgeting assumes that cash flows are reinvested at the
company’s cost of capital.
Part II: Multiple Choice (40 Questions)
Select the best possible answer for each question.
21. Which of the following best describes the accounting
equation?
a) Assets = Liabilities - Equity
b) Assets = Liabilities + Equity
c) Equity = Assets + Liabilities
d) Liabilities = Assets + Equity
22. Which group would likely be least interested in the financial
statements of a large public company?
a) Shareholders
