CHAPTER 1
ACCOUNTING: INFORMATION FOR DECISION MAKING
TRUE/FALSE
1. The Decision Framework applies to all business-related decisions, but not to personal decisions.
(LO1) Answer – False The four-step process applies equally to all decisions, whether personal or
business-related.
2. Business decisions generally have few options.
(LO1) Answer – False Business decisions frequently have numerous options.
3. Every option in making a decision presents a unique trade-off between benefits and costs.
(LO1) Answer – True
4. Effective decision makers ensure that the value of the chosen decision option exceeds its
opportunity cost.
(LO1) Answer – True
5. The value of an option must always be expressed in monetary terms.
(LO1) Answer – False Even though most businesses measure value in terms of money, or profit, value
need not be a monetary amount.
6. Unlike individuals whose goals might have several factors, organizations tend to have focused goals.
(LO1) Answer – False
7. The key difference between individual and business decisions relate to Step 2 of the four-step
framework, that is, identifying options.
(LO1) Answer – False The key difference between individual and business decisions relates to step 1
of the four-step framework – that is, organizations need to ensure that the goals of individual
employees mesh with the focused goals of the organization.
8. To accomplish their goals, organizations not only need to allocate resources effectively, but also
need to motivate employees to focus on organizational goals.
(LO1) Answer – True
9. A for-profit business usually specifies organizational goals according to profit motive.
(LO2) Answer – False A for-profit business usually specifies organizational goals according to
ownership.
,10. Decisions that best attain individual goals may not necessarily agree with the organization’s goal of
maximizing profit.
(LO2) Answer – True
11. Control decisions relate to motivating, monitoring, and evaluating performance.
(LO3) Answer – True
12. Examining past performance is not involved in control decisions.
(LO3) Answer – False Many control decisions involve examining past performance, with the purpose
of improving subsequent plans.
13. The planning and control cycle is a long-term cycle normally taking months to complete.
(LO3) Answer – False The planning and control cycle could happen within moments or take months.
14. Planning decisions relate to choices about acquiring and using resources to deliver products and
services to customers.
(LO3) Answer – True
15. The planning and control cycle includes planning, implementing, evaluating, and revising.
(LO3) Answer – True
16. Understanding finance is not crucial to organizations when identifying the costs and benefits of
funding operations in different ways.
(LO4) Answer – False Understanding finance is crucial when identifying the costs and benefits of
funding operations in different ways.
17. Managerial accounting aims to satisfy the information needs of decision makers outside the firm.
(LO4) Answer – False Managerial accounting aims to satisfy the information needs of decision makers
inside the firm.
18. Firms satisfy the information needs of external makers by issuing a comprehensive set of financial
statements at regular intervals that relate to the firm as a whole.
(LO4) Answer – True
19. The primary role of accounting is to help measure the costs and benefits of decision options.
(LO4) Answer – True
,20. In the United States, firms follow Generally Accepted Accounting Principles (GAAP) as defined by the
Financial Accounting Standards Board when preparing their financial statements.
(LO4) Answer – True
21. Ethics relate primarily to the decision-making step of the Decision Framework.
(LO5) Answer – False Ethics relates to every aspect of the Decision Framework.
22. The Foreign Corrupt Practices Act of 1977 prohibits managers from giving or taking bribes unless
such acts are part of the normal business practices in another country.
(LO5) Answer – False The Foreign Corrupt Practices Act of 1977 prohibits managers from giving or
taking bribes even if such acts are part of the normal business practices in another country.
23. Many firms conduct surprise audits to increase the odds of detecting unethical behavior.
(LO5) Answer – True
24. The Sarbanes-Oxley Act of 2002 mandates that the executives and financial officers certify, in
writing, the truthfulness of reports filed with the IRS.
(LO5) Answer – False The Sarbanes-Oxley Act of 2002 mandates that the executives and financial
officers certify, in writing, the truthfulness of reports filed with the SEC.
25. Some firms impose ethical standards on their suppliers.
(LO5) Answer – True
26. An organization’s board of directors usually delegates most decisions to the Chief Operating Officer.
(APP A) Answer – False An organization’s board of directors usually delegates most decisions to
the Chief Executive Officer, the highest-ranking executive in the organization.
27. The chief financial officer (CFO) manages the internal audit function of a company.
(APP A) Answer – False The chief internal auditor manages the internal audit function.
28. The controller manages the day-to-day accounting for the firm and oversees corporate accounting
policies.
(APP A) Answer – True
29. Division managers are responsible for ensuring that the firm has appropriate monitoring,
performance evaluation and incentive systems in place to motivate employees to achieve
organizational goals.
(APP A) Answer – False Division managers direct the day-to-day operations of product lines and
, markets.
30. While divisional controllers report to division managers, they also have a “dotted line” relationship
with the corporate controller.
(APP A) Answer – True
MULTIPLE CHOICE
31. Which of the following is not one of the four steps in the decision-making process?
A. Specify the decision problem, including the decision maker’s goals.
B. Identify options.
C. Separate routine decision problems from non-routine decision problems.
D. Measure benefits and costs to determine the value of each option.
E. Make the decision, choosing the option with the highest value.
(LO1) Answer – C
32. The value of an option equals its:
A. Benefits plus its costs.
B. Benefits less its costs.
C. Costs.
D. Profit.
E. None of the above.
(LO1) Answer – B
33. The opportunity cost of any decision option is:
A. The value to the decision maker of the least-best option.
B. The total profit of the best option.
C. The total costs of the least option.
D. The value to the decision maker of the next best option.
E. None of the above.
(LO1) Answer – D
34. The concepts of value and opportunity cost emphasize that every decision involves:
A. Eliminating any risks of making the decision.
B. Estimating the time value of money.
C. Trading off what the decision maker gets with what the decision maker gives up.
D. Comparing the current period’s opportunity costs with the previous period’s opportunity costs.
E. None of the above.
(LO1) Answer – C
35. Which of the following statements is false?
A. Decisions help us accomplish goals.
B. When determining their goals, individuals generally agree on the factors they consider and the
ACCOUNTING: INFORMATION FOR DECISION MAKING
TRUE/FALSE
1. The Decision Framework applies to all business-related decisions, but not to personal decisions.
(LO1) Answer – False The four-step process applies equally to all decisions, whether personal or
business-related.
2. Business decisions generally have few options.
(LO1) Answer – False Business decisions frequently have numerous options.
3. Every option in making a decision presents a unique trade-off between benefits and costs.
(LO1) Answer – True
4. Effective decision makers ensure that the value of the chosen decision option exceeds its
opportunity cost.
(LO1) Answer – True
5. The value of an option must always be expressed in monetary terms.
(LO1) Answer – False Even though most businesses measure value in terms of money, or profit, value
need not be a monetary amount.
6. Unlike individuals whose goals might have several factors, organizations tend to have focused goals.
(LO1) Answer – False
7. The key difference between individual and business decisions relate to Step 2 of the four-step
framework, that is, identifying options.
(LO1) Answer – False The key difference between individual and business decisions relates to step 1
of the four-step framework – that is, organizations need to ensure that the goals of individual
employees mesh with the focused goals of the organization.
8. To accomplish their goals, organizations not only need to allocate resources effectively, but also
need to motivate employees to focus on organizational goals.
(LO1) Answer – True
9. A for-profit business usually specifies organizational goals according to profit motive.
(LO2) Answer – False A for-profit business usually specifies organizational goals according to
ownership.
,10. Decisions that best attain individual goals may not necessarily agree with the organization’s goal of
maximizing profit.
(LO2) Answer – True
11. Control decisions relate to motivating, monitoring, and evaluating performance.
(LO3) Answer – True
12. Examining past performance is not involved in control decisions.
(LO3) Answer – False Many control decisions involve examining past performance, with the purpose
of improving subsequent plans.
13. The planning and control cycle is a long-term cycle normally taking months to complete.
(LO3) Answer – False The planning and control cycle could happen within moments or take months.
14. Planning decisions relate to choices about acquiring and using resources to deliver products and
services to customers.
(LO3) Answer – True
15. The planning and control cycle includes planning, implementing, evaluating, and revising.
(LO3) Answer – True
16. Understanding finance is not crucial to organizations when identifying the costs and benefits of
funding operations in different ways.
(LO4) Answer – False Understanding finance is crucial when identifying the costs and benefits of
funding operations in different ways.
17. Managerial accounting aims to satisfy the information needs of decision makers outside the firm.
(LO4) Answer – False Managerial accounting aims to satisfy the information needs of decision makers
inside the firm.
18. Firms satisfy the information needs of external makers by issuing a comprehensive set of financial
statements at regular intervals that relate to the firm as a whole.
(LO4) Answer – True
19. The primary role of accounting is to help measure the costs and benefits of decision options.
(LO4) Answer – True
,20. In the United States, firms follow Generally Accepted Accounting Principles (GAAP) as defined by the
Financial Accounting Standards Board when preparing their financial statements.
(LO4) Answer – True
21. Ethics relate primarily to the decision-making step of the Decision Framework.
(LO5) Answer – False Ethics relates to every aspect of the Decision Framework.
22. The Foreign Corrupt Practices Act of 1977 prohibits managers from giving or taking bribes unless
such acts are part of the normal business practices in another country.
(LO5) Answer – False The Foreign Corrupt Practices Act of 1977 prohibits managers from giving or
taking bribes even if such acts are part of the normal business practices in another country.
23. Many firms conduct surprise audits to increase the odds of detecting unethical behavior.
(LO5) Answer – True
24. The Sarbanes-Oxley Act of 2002 mandates that the executives and financial officers certify, in
writing, the truthfulness of reports filed with the IRS.
(LO5) Answer – False The Sarbanes-Oxley Act of 2002 mandates that the executives and financial
officers certify, in writing, the truthfulness of reports filed with the SEC.
25. Some firms impose ethical standards on their suppliers.
(LO5) Answer – True
26. An organization’s board of directors usually delegates most decisions to the Chief Operating Officer.
(APP A) Answer – False An organization’s board of directors usually delegates most decisions to
the Chief Executive Officer, the highest-ranking executive in the organization.
27. The chief financial officer (CFO) manages the internal audit function of a company.
(APP A) Answer – False The chief internal auditor manages the internal audit function.
28. The controller manages the day-to-day accounting for the firm and oversees corporate accounting
policies.
(APP A) Answer – True
29. Division managers are responsible for ensuring that the firm has appropriate monitoring,
performance evaluation and incentive systems in place to motivate employees to achieve
organizational goals.
(APP A) Answer – False Division managers direct the day-to-day operations of product lines and
, markets.
30. While divisional controllers report to division managers, they also have a “dotted line” relationship
with the corporate controller.
(APP A) Answer – True
MULTIPLE CHOICE
31. Which of the following is not one of the four steps in the decision-making process?
A. Specify the decision problem, including the decision maker’s goals.
B. Identify options.
C. Separate routine decision problems from non-routine decision problems.
D. Measure benefits and costs to determine the value of each option.
E. Make the decision, choosing the option with the highest value.
(LO1) Answer – C
32. The value of an option equals its:
A. Benefits plus its costs.
B. Benefits less its costs.
C. Costs.
D. Profit.
E. None of the above.
(LO1) Answer – B
33. The opportunity cost of any decision option is:
A. The value to the decision maker of the least-best option.
B. The total profit of the best option.
C. The total costs of the least option.
D. The value to the decision maker of the next best option.
E. None of the above.
(LO1) Answer – D
34. The concepts of value and opportunity cost emphasize that every decision involves:
A. Eliminating any risks of making the decision.
B. Estimating the time value of money.
C. Trading off what the decision maker gets with what the decision maker gives up.
D. Comparing the current period’s opportunity costs with the previous period’s opportunity costs.
E. None of the above.
(LO1) Answer – C
35. Which of the following statements is false?
A. Decisions help us accomplish goals.
B. When determining their goals, individuals generally agree on the factors they consider and the
