OpenStax Principles of Accounting, Volume 2: Managerial Accounting
Chapter 1: Accounting as a Tool for Managers
Page 1 of 22
, Principles of Accounting, Volume 2: Managerial Accounting
Chapter 1: Accounting as a Tool for Managers
Multiple Choice
1. LO 1.1 The managers of an organization are responsible for performing several broad
functions. They are ________.
A. planning, controlling, and selling
B. directing, controlling, and evaluating
C. planning, evaluating, and manufacturing
D. planning, controlling, and evaluating
Solution
D
2. LO 1.1 Management accountants help the management of an organization in their planning
function through ________.
A. monitoring anti-theft systems
B. strategic planning
C. evaluating costs
D. analyzing profits
Solution
B
3. LO 1.1 Which of the following is a primary aspect of the evaluating function within an
organization?
A. comparing actual results against expected results for products, departments, divisions, or
the company as a whole
B. reviewing only the quantitative or financial results of the company
C. setting goals
D. putting controls in place for the upcoming year
Solution
A
4. LO 1.1 During the control function, the measurements taken of the performance must be
accurate enough to see ________.
A. only positive results
B. deviations and variances
C. the primary focus
D. only the negative results
Solution
B
5. LO 1.1 Which of the following is false regarding strategic planning?
A. It is the sole responsibility of supervisors.
B. It will span many years.
C. It should include both short-term and long-term goals.
D. Strategic objectives will be diverse and vary from company to company.
Solution
A
6. LO 1.2 Managerial accounting produces information:
A. to meet the needs of external users
Page 2 of 22
, B. that is often focused on the future
C. to meet the needs of investors
D. that follows the rules of GAAP
Solution
B
7. LO 1.2 Management accounting:
A. emphasizes special-purpose information
B. relates to the company as a whole
C. is limited to strictly cost figures
D. is controlled by GAAP
Solution
A
8. LO 1.2 Internal users of accounting information would not include ________.
A. managers
B. employees
C. creditors
D. officers
Solution
C
9. LO 1.2 External users of accounting information would include ________.
A. employees
B. managers
C. investors
D. supervisors
Solution
C
10. LO 1.2 Which of the following statements is incorrect?
A. The practice of management accounting is fairly flexible.
B. The information gathered from management accounting is not required by law.
C. Management accounting focuses mainly on the internal user.
D. Reports produced using management accounting must follow GAAP.
Solution
D
11. LO 1.3 The stockholders of a company are:
A. the owners
B. policy setters
C. responsible and liable for the financial well-being of the company
D. operating within the company as independent shareholders
Solution
A
12. LO 1.3 The controller of a corporation:
A. reports to the CFO and is in charge of the finance side of the business
B. reports to the CFO and is in charge of the accounting side of the business
C. reports to the CEO and implements all cash policies
D. reports to the board of directors
Solution
Page 3 of 22
,B
13. LO 1.3 The Certified Financial Analyst (CFA) certification:
A. only requires a high school diploma
B. is administered by the AICPA
C. consists of three separate exams that must be taken in succession
D. is the most popular certification among accountants in the United States
Solution
C
14. LO 1.3 The Certified Management Accountant (CMA) certification:
A. signifies someone specializing in tax accounting
B. requires an associate’s degree and four years of work experience
C. includes a two-part exam, education requirements, and a work experience requirement
D. is offered to managers who take special courses in accounting
Solution
C
15. LO 1.3 Which of the following terms means the ability to work in cross-functional teams in
order to complete a task?
A. supervisory skills
B. conceptualization
C. collaboration
D. resource planning
Solution
C
16. LO 1.3 Which of the following terms means knowing how a business is run and how it is
influenced by external forces, and knowing and understanding the overall industry?
A. commercial awareness
B. conceptualization
C. collaboration
D. imagination
Solution
A
17. LO 1.4 What is the law that protects investors from fraudulent financial accounting activity?
A. FASB
B. SACS
C. SOX
D. CPAS
Solution
C
18. LO 1.4 What year was the Sarbanes-Oxley Act enacted?
A. 2007
B. 1992
C. 1997
D. 2002
Solution
D
Page 4 of 22
,19. LO 1.4 When a representative of an organization gives money to another business official in
order to gain favor and/or manipulate a business decision, this is known as ________.
A. whistleblowing
B. bribery
C. buyer debits
D. face value
Solution
B
20. LO 1.4 The law that specifically prohibits payments to foreign officials in order to attain
business is known as ________.
A. FCPA
B. AICPA
C. SOX
D. IFRS
Solution
A
21. LO 1.4 Which of the following is not a step in the outline for examining ethical issues?
A. Establish the facts of the situation.
B. Evaluate each course of action.
C. Make a decision.
D. Confirm decision with FASB.
Solution
D
22. LO 1.5 Which of the following is not an objective used in the balanced scorecard approach?
A. Customer
B. Financial
C. Vendor
D. Learning and growth
Solution
C
23. LO 1.5 Which of the following is not true regarding continuous improvement?
A. It applies to both service and manufacturing companies.
B. It is used to reduce performance costs.
C. It rejects the idea of “good enough.”
D. It can be applied only to improve processes and products but not services and practices.
Solution
D
24. LO 1.5 A company’s attempts to utilize sustainable business practices with regard to its
employees, the environment, and society are known as ________.
A. a balanced scorecard
B. corporate social responsibility
C. total quality management
D. value chain
Solution
B
Page 5 of 22
,25. LO 1.5 A process that is often linked to Six Sigma and is designed toward continuous
improvement by eliminating waste is ________.
A. kamikaze
B. value chain
C. total quality management
D. kaizen
Solution
D
26. LO 1.5 An inventory system that organizations use to increase efficiency and decrease waste
is ________.
A. corporate social responsibility
B. just-in-time manufacturing
C. total quality management
D. Lean Six Sigma
Solution
B
27. LO 1.5 A quality control program that depends on multiple team members for removing
waste and diminishing defects within products is ________.
A. kaizen
B. total quality management
C. Lean Six Sigma
D. a balanced scorecard
Solution
C
Questions
1. LO 1.1 Carlita believes an important part of the planning process for managers is being sure to
position the company to achieve its goals. She thinks that positioning is an extensive concept and
can depend on the right information and that managerial accountants assist in positioning the
company. Is she correct? Explain.
Solution
Answers will vary but should include that cost analysis, branding, pricing, and competition all
fall under positioning, and this information comes from the managerial accounting staff. It is
used to plan for future processes.
2. LO 1.1 What are some activities and tasks a manager might perform when engaging in the
controlling function of management responsibilities?
Solution
Answers will vary. Responses may include putting in place ways to assess the company’s
success in meeting objectives and goals; monitoring the outcomes of objectives put into place,
such as controlling theft of goods or cash; determining the appropriate controls to assess
successful outcomes; deciding which ratio to use to measure inventory controls; deciding which
performance measure or physical control is more appropriate; defining and administering the
steps of a company’s short-term and/or long-term planning to help operationalize day-to-day
activities to meet corporate goals; and providing performance reports and control reports that
report variances between plans and actual performance.
Page 6 of 22
,3. LO 1.1 If there are deviations from the stated goals and objectives, what steps can managers
take to get back on track? Provide at least two specific examples.
Solution
Answers will vary but should include the following: Managers must determine what
modifications and changes need to be made to operations to get back on track to meet the stated
goals and objectives. Managers need to decide if stated goals and objectives should continue to
be pursued as they are, or if they should be modified or completely scrapped. Examples may
include revising inventory controls to include antitheft tags that trigger an alarm when inventory
is moved from an approved location in order to reduce inventory losses; installing more cameras
in more strategic locations to further reduce theft from shoplifting; revising the financial metrics
such as ratios or other performance measurements to provide more meaningful and timely insight
to help determine how to get back on track; investigating why market share has not changed as
expected by talking to the sales force and analyzing market data; evaluating same-store sales to
understand how to expand sales in accordance with goals and objectives; and investigating why a
production process has experienced a bottleneck and how to relieve the pressure in that specific
area, such as making sure appropriate raw materials are available in a timely manner to avoid
machine shutdowns waiting on materials to arrive.
4. LO 1.1 Explain how managerial accountants help managers plan, control, and evaluate.
Solution
Answers will vary. Responses should include the following. Managerial accountants help
managers at all levels of the organization to plan, control, and evaluate. They help determine
whether plans are measurable, what controls should be implemented to carry out a plan, and
what the proper means are for evaluating the controls. Feedback is very important for each step,
and the managerial accountants generate the reports and information needed to assess the results
of the various evaluations, and they help interpret the results.
5. LO 1.1 How do the subject matter of reports and the verification of reports differ between
financial accounting and managerial accounting?
Solution
Reports generated from financial accounting are a compilation of a company’s various
transactions and contain aggregated information for the entire company in the form of financial
statements. For publicly traded companies, these reports follow the rules set forth by the
Financial Accounting Standards Board (FASB). In addition, the financial statements are verified
by external auditors. Reports generated by managerial accounting are varied in nature because
they are driven by the questions that need to be addressed by management. Different companies
and different questions require different reports. Managerial accounting reports are therefore on a
more detailed level, such as on a product or division level. There are no specific rules guiding the
creation of these reports, and they are usually unaudited.
6. LO 1.2 What is the purpose of management accounting?
Solution
The purpose of management accounting is to supply financial and nonfinancial information to
the organization’s management and other internal decision makers.
7. LO 1.2 Who are the primary users of the information gathered by managerial accountants?
Solution
The primary users of information gathered by managerial accountants are internal users,
including management, employees, and officers.
Page 7 of 22
,8. LO 1.2 What are the key differences between financial accounting and managerial
accounting?
Solution
The key differences between financial accounting and managerial accounting are the users, types
of reports, frequency of reports, purpose of reports, focus of reports, nature of reports, and
verification.
9. LO 1.3 Other than accounting skills, what six qualities must be prevalent in a managerial
accountant?
Solution
Six qualities a managerial accountant should exhibit are commercial awareness, collaboration,
effective communication, strong technology skills, analytical skills, and ethics.
10. LO 1.3 Explain how having more than one of the accounting credentials would be beneficial
to an accounting career.
Solution
While there are numerous options from which to select, we provide five samples here: Certified
Public Accountant (CPA), Certified Management Accountant (CMA), Certified Internal Auditor
(CIA), Chartered Financial Analyst (CFA), and Certified Financial Planner (CFP). Currently,
there seems to be a preference for broadly trained accounting/financial practitioners.
Practitioners with a broad background have more employment opportunities. In some cases,
there is some overlap in preparing for the certification exams. Also, for some of the exams you
get credit for other exams passed. For example, if you are a CPA, and you want to take the CFP
exam, the requirements are often less rigorous.
LO 1.3 Briefly discuss the chain of command for someone being hired into an organization as a
staff managerial accountant.
Solution
The chain of command for someone being hired into an organization as a staff managerial
accounting is: Management accounting supervisor → Controller → CFO → CEO → Board of
Directors.
11. LO 1.3 According to the information available at http://www.accounting.com/careers/, what
are six different areas of accounting on which you can focus your career?
Solution
Six different areas of accounting on which you can focus your career are public accounting,
financial accounting, auditing, government accounting, management accounting, and forensic
accounting.
12. LO 1.3 According to the information on management accounting available at
http://www.accounting.com/careers/, what are some areas of specialization?
Solution
Specialization areas for management accountants includes budget analyst, financial analyst,
accounting manager, controller, chief financial officer
13. LO 1.3 Go to http://www.accounting.com/careers/ and look up your state to find projected
job growth and projected salaries.
Solution
Answers will vary by state.
14. LO 1.4 What other professional business organizations have a code of ethics?
Solution
Page 8 of 22
,Examples of professional business organizations that have a code of ethics are: American
Institute of Public Accountants, Association of Certified Fraud Examiners, Financial Executives
Institute, American Marketing Association, and National Society of Professional Engineers.
15. LO 1.4 How can having a bonus system based purely on sales goals create an environment
that encourages unethical behavior?
Solution
Answers will vary. Basing bonuses purely on sales goals gives incentive to those receiving the
bonuses to be unethical in order to achieve their bonuses.
16. LO 1.4 What led to the United States Congress passing the public accounting reform act
called Sarbanes-Oxley?
Solution
Several accounting scandals involving publicly traded companies (Enron, WorldCom, and
Arthur Andersen) led to the act. It was aimed particularly at public accounting organizations that
performed audits of publicly traded corporations.
17. LO 1.5 What is an enterprise resource planning (ERP) system? What are the principal
benefits of such a system?
Solution
Answers will vary. Responses should include the following. An ERP system helps companies
streamline their operations and helps management respond quickly to change. While an ERP
system is usually expensive to implement, the principal benefits include the alleviation of major
complications that arise when business systems do not coordinate with each other and the ability
to have one system that compartmentalizes different organizational functions into working units
that share with each other when it is beneficial to managing the organization.
18. LO 1.5 Describe what is meant by the term “balanced” in the term balanced scorecard
method.
Solution
“Balanced” refers to using financial and nonfinancial measures in evaluating all attributes of the
organization’s procedures balanced across four perspectives: financial, customer, internal
process, and learning and growth/capacity. It also refers to considering both high-level and low-
level measures using the company’s own strategic plan.
19. LO 1.5 What is corporate social responsibility, and who are the stakeholders?
Solution
Corporate social responsibility refers to an organization’s programs to evaluate and take
responsibility for that organization’s effects on environmental and social welfare. The
stakeholders include owners, investors, employees, customers, partners, communities,
competitors, media, and others.
Exercise Set A
EA1. LO 1.2 Indicate whether each statement describes financial accounting or managerial
accounting.
A. The information is directed at external users who are making decisions pertaining to
investing, extending credit, and other decisions.
B. The principal users are the organization’s managers.
C. The key focus is on the entity as a whole.
D. The rules and principles are very flexible.
Page 9 of 22
, E. The information gathered is usually available after an independent audit has been
completed.
Solution
A. Financial. B. Managerial. C. Financial. D. Managerial. E. Financial.
EA2. LO 1.2 Identify the following as True or False:
A. Managerial accounting reports must comply with the rules set in place by the FASB.
B. Financial accounting reports are typically general-purpose reports.
C. Financial accounting reports pertain to the entity as a whole, whereas managerial
accounting focuses more on subunits of the organization.
D. The main users of the financial accounting information are the internal users.
E. Managerial reports are prepared on an as-needed basis.
F. Financial accounting reports often must be audited at least annually by an independent
auditor.
Solution
A. False. B. True. C. True. D. False. E. True. F. True.
EA3. LO 1.2 Define each of these users of accounting information as an internal user of external
user:
A. Management
B. Employees
C. Investors
D. Creditors
E. Customers
F. Tax authorities
Solution
A. Internal. B. Internal. C. External. D. External. E. External. F. External.
EA4. LO 1.2 Discuss what information would be most useful for these users of accounting
information:
A. Management
B. Employees
C. Investors
D. Creditors
E. Customers
F. Tax authorities
Solution
Answers will vary. Responses should mention that internal users will need more detailed
information from managerial reports, while external users can only get information from the
financial reports.
EA5. LO 1.3 Taylor Speedy has prepared the following list of statements about managerial
accounting, financial accounting, and the functions of management. Identify each statement as
true or false.
A. Financial accounting centers on providing information to internal users.
B. Staff positions are directly involved in the company’s primary revenue-generating
activities.
C. Preparation of budgets is part of financial accounting.
D. Managerial accounting applies only to merchandising and manufacturing companies.
Page 10 of 22
Chapter 1: Accounting as a Tool for Managers
Page 1 of 22
, Principles of Accounting, Volume 2: Managerial Accounting
Chapter 1: Accounting as a Tool for Managers
Multiple Choice
1. LO 1.1 The managers of an organization are responsible for performing several broad
functions. They are ________.
A. planning, controlling, and selling
B. directing, controlling, and evaluating
C. planning, evaluating, and manufacturing
D. planning, controlling, and evaluating
Solution
D
2. LO 1.1 Management accountants help the management of an organization in their planning
function through ________.
A. monitoring anti-theft systems
B. strategic planning
C. evaluating costs
D. analyzing profits
Solution
B
3. LO 1.1 Which of the following is a primary aspect of the evaluating function within an
organization?
A. comparing actual results against expected results for products, departments, divisions, or
the company as a whole
B. reviewing only the quantitative or financial results of the company
C. setting goals
D. putting controls in place for the upcoming year
Solution
A
4. LO 1.1 During the control function, the measurements taken of the performance must be
accurate enough to see ________.
A. only positive results
B. deviations and variances
C. the primary focus
D. only the negative results
Solution
B
5. LO 1.1 Which of the following is false regarding strategic planning?
A. It is the sole responsibility of supervisors.
B. It will span many years.
C. It should include both short-term and long-term goals.
D. Strategic objectives will be diverse and vary from company to company.
Solution
A
6. LO 1.2 Managerial accounting produces information:
A. to meet the needs of external users
Page 2 of 22
, B. that is often focused on the future
C. to meet the needs of investors
D. that follows the rules of GAAP
Solution
B
7. LO 1.2 Management accounting:
A. emphasizes special-purpose information
B. relates to the company as a whole
C. is limited to strictly cost figures
D. is controlled by GAAP
Solution
A
8. LO 1.2 Internal users of accounting information would not include ________.
A. managers
B. employees
C. creditors
D. officers
Solution
C
9. LO 1.2 External users of accounting information would include ________.
A. employees
B. managers
C. investors
D. supervisors
Solution
C
10. LO 1.2 Which of the following statements is incorrect?
A. The practice of management accounting is fairly flexible.
B. The information gathered from management accounting is not required by law.
C. Management accounting focuses mainly on the internal user.
D. Reports produced using management accounting must follow GAAP.
Solution
D
11. LO 1.3 The stockholders of a company are:
A. the owners
B. policy setters
C. responsible and liable for the financial well-being of the company
D. operating within the company as independent shareholders
Solution
A
12. LO 1.3 The controller of a corporation:
A. reports to the CFO and is in charge of the finance side of the business
B. reports to the CFO and is in charge of the accounting side of the business
C. reports to the CEO and implements all cash policies
D. reports to the board of directors
Solution
Page 3 of 22
,B
13. LO 1.3 The Certified Financial Analyst (CFA) certification:
A. only requires a high school diploma
B. is administered by the AICPA
C. consists of three separate exams that must be taken in succession
D. is the most popular certification among accountants in the United States
Solution
C
14. LO 1.3 The Certified Management Accountant (CMA) certification:
A. signifies someone specializing in tax accounting
B. requires an associate’s degree and four years of work experience
C. includes a two-part exam, education requirements, and a work experience requirement
D. is offered to managers who take special courses in accounting
Solution
C
15. LO 1.3 Which of the following terms means the ability to work in cross-functional teams in
order to complete a task?
A. supervisory skills
B. conceptualization
C. collaboration
D. resource planning
Solution
C
16. LO 1.3 Which of the following terms means knowing how a business is run and how it is
influenced by external forces, and knowing and understanding the overall industry?
A. commercial awareness
B. conceptualization
C. collaboration
D. imagination
Solution
A
17. LO 1.4 What is the law that protects investors from fraudulent financial accounting activity?
A. FASB
B. SACS
C. SOX
D. CPAS
Solution
C
18. LO 1.4 What year was the Sarbanes-Oxley Act enacted?
A. 2007
B. 1992
C. 1997
D. 2002
Solution
D
Page 4 of 22
,19. LO 1.4 When a representative of an organization gives money to another business official in
order to gain favor and/or manipulate a business decision, this is known as ________.
A. whistleblowing
B. bribery
C. buyer debits
D. face value
Solution
B
20. LO 1.4 The law that specifically prohibits payments to foreign officials in order to attain
business is known as ________.
A. FCPA
B. AICPA
C. SOX
D. IFRS
Solution
A
21. LO 1.4 Which of the following is not a step in the outline for examining ethical issues?
A. Establish the facts of the situation.
B. Evaluate each course of action.
C. Make a decision.
D. Confirm decision with FASB.
Solution
D
22. LO 1.5 Which of the following is not an objective used in the balanced scorecard approach?
A. Customer
B. Financial
C. Vendor
D. Learning and growth
Solution
C
23. LO 1.5 Which of the following is not true regarding continuous improvement?
A. It applies to both service and manufacturing companies.
B. It is used to reduce performance costs.
C. It rejects the idea of “good enough.”
D. It can be applied only to improve processes and products but not services and practices.
Solution
D
24. LO 1.5 A company’s attempts to utilize sustainable business practices with regard to its
employees, the environment, and society are known as ________.
A. a balanced scorecard
B. corporate social responsibility
C. total quality management
D. value chain
Solution
B
Page 5 of 22
,25. LO 1.5 A process that is often linked to Six Sigma and is designed toward continuous
improvement by eliminating waste is ________.
A. kamikaze
B. value chain
C. total quality management
D. kaizen
Solution
D
26. LO 1.5 An inventory system that organizations use to increase efficiency and decrease waste
is ________.
A. corporate social responsibility
B. just-in-time manufacturing
C. total quality management
D. Lean Six Sigma
Solution
B
27. LO 1.5 A quality control program that depends on multiple team members for removing
waste and diminishing defects within products is ________.
A. kaizen
B. total quality management
C. Lean Six Sigma
D. a balanced scorecard
Solution
C
Questions
1. LO 1.1 Carlita believes an important part of the planning process for managers is being sure to
position the company to achieve its goals. She thinks that positioning is an extensive concept and
can depend on the right information and that managerial accountants assist in positioning the
company. Is she correct? Explain.
Solution
Answers will vary but should include that cost analysis, branding, pricing, and competition all
fall under positioning, and this information comes from the managerial accounting staff. It is
used to plan for future processes.
2. LO 1.1 What are some activities and tasks a manager might perform when engaging in the
controlling function of management responsibilities?
Solution
Answers will vary. Responses may include putting in place ways to assess the company’s
success in meeting objectives and goals; monitoring the outcomes of objectives put into place,
such as controlling theft of goods or cash; determining the appropriate controls to assess
successful outcomes; deciding which ratio to use to measure inventory controls; deciding which
performance measure or physical control is more appropriate; defining and administering the
steps of a company’s short-term and/or long-term planning to help operationalize day-to-day
activities to meet corporate goals; and providing performance reports and control reports that
report variances between plans and actual performance.
Page 6 of 22
,3. LO 1.1 If there are deviations from the stated goals and objectives, what steps can managers
take to get back on track? Provide at least two specific examples.
Solution
Answers will vary but should include the following: Managers must determine what
modifications and changes need to be made to operations to get back on track to meet the stated
goals and objectives. Managers need to decide if stated goals and objectives should continue to
be pursued as they are, or if they should be modified or completely scrapped. Examples may
include revising inventory controls to include antitheft tags that trigger an alarm when inventory
is moved from an approved location in order to reduce inventory losses; installing more cameras
in more strategic locations to further reduce theft from shoplifting; revising the financial metrics
such as ratios or other performance measurements to provide more meaningful and timely insight
to help determine how to get back on track; investigating why market share has not changed as
expected by talking to the sales force and analyzing market data; evaluating same-store sales to
understand how to expand sales in accordance with goals and objectives; and investigating why a
production process has experienced a bottleneck and how to relieve the pressure in that specific
area, such as making sure appropriate raw materials are available in a timely manner to avoid
machine shutdowns waiting on materials to arrive.
4. LO 1.1 Explain how managerial accountants help managers plan, control, and evaluate.
Solution
Answers will vary. Responses should include the following. Managerial accountants help
managers at all levels of the organization to plan, control, and evaluate. They help determine
whether plans are measurable, what controls should be implemented to carry out a plan, and
what the proper means are for evaluating the controls. Feedback is very important for each step,
and the managerial accountants generate the reports and information needed to assess the results
of the various evaluations, and they help interpret the results.
5. LO 1.1 How do the subject matter of reports and the verification of reports differ between
financial accounting and managerial accounting?
Solution
Reports generated from financial accounting are a compilation of a company’s various
transactions and contain aggregated information for the entire company in the form of financial
statements. For publicly traded companies, these reports follow the rules set forth by the
Financial Accounting Standards Board (FASB). In addition, the financial statements are verified
by external auditors. Reports generated by managerial accounting are varied in nature because
they are driven by the questions that need to be addressed by management. Different companies
and different questions require different reports. Managerial accounting reports are therefore on a
more detailed level, such as on a product or division level. There are no specific rules guiding the
creation of these reports, and they are usually unaudited.
6. LO 1.2 What is the purpose of management accounting?
Solution
The purpose of management accounting is to supply financial and nonfinancial information to
the organization’s management and other internal decision makers.
7. LO 1.2 Who are the primary users of the information gathered by managerial accountants?
Solution
The primary users of information gathered by managerial accountants are internal users,
including management, employees, and officers.
Page 7 of 22
,8. LO 1.2 What are the key differences between financial accounting and managerial
accounting?
Solution
The key differences between financial accounting and managerial accounting are the users, types
of reports, frequency of reports, purpose of reports, focus of reports, nature of reports, and
verification.
9. LO 1.3 Other than accounting skills, what six qualities must be prevalent in a managerial
accountant?
Solution
Six qualities a managerial accountant should exhibit are commercial awareness, collaboration,
effective communication, strong technology skills, analytical skills, and ethics.
10. LO 1.3 Explain how having more than one of the accounting credentials would be beneficial
to an accounting career.
Solution
While there are numerous options from which to select, we provide five samples here: Certified
Public Accountant (CPA), Certified Management Accountant (CMA), Certified Internal Auditor
(CIA), Chartered Financial Analyst (CFA), and Certified Financial Planner (CFP). Currently,
there seems to be a preference for broadly trained accounting/financial practitioners.
Practitioners with a broad background have more employment opportunities. In some cases,
there is some overlap in preparing for the certification exams. Also, for some of the exams you
get credit for other exams passed. For example, if you are a CPA, and you want to take the CFP
exam, the requirements are often less rigorous.
LO 1.3 Briefly discuss the chain of command for someone being hired into an organization as a
staff managerial accountant.
Solution
The chain of command for someone being hired into an organization as a staff managerial
accounting is: Management accounting supervisor → Controller → CFO → CEO → Board of
Directors.
11. LO 1.3 According to the information available at http://www.accounting.com/careers/, what
are six different areas of accounting on which you can focus your career?
Solution
Six different areas of accounting on which you can focus your career are public accounting,
financial accounting, auditing, government accounting, management accounting, and forensic
accounting.
12. LO 1.3 According to the information on management accounting available at
http://www.accounting.com/careers/, what are some areas of specialization?
Solution
Specialization areas for management accountants includes budget analyst, financial analyst,
accounting manager, controller, chief financial officer
13. LO 1.3 Go to http://www.accounting.com/careers/ and look up your state to find projected
job growth and projected salaries.
Solution
Answers will vary by state.
14. LO 1.4 What other professional business organizations have a code of ethics?
Solution
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,Examples of professional business organizations that have a code of ethics are: American
Institute of Public Accountants, Association of Certified Fraud Examiners, Financial Executives
Institute, American Marketing Association, and National Society of Professional Engineers.
15. LO 1.4 How can having a bonus system based purely on sales goals create an environment
that encourages unethical behavior?
Solution
Answers will vary. Basing bonuses purely on sales goals gives incentive to those receiving the
bonuses to be unethical in order to achieve their bonuses.
16. LO 1.4 What led to the United States Congress passing the public accounting reform act
called Sarbanes-Oxley?
Solution
Several accounting scandals involving publicly traded companies (Enron, WorldCom, and
Arthur Andersen) led to the act. It was aimed particularly at public accounting organizations that
performed audits of publicly traded corporations.
17. LO 1.5 What is an enterprise resource planning (ERP) system? What are the principal
benefits of such a system?
Solution
Answers will vary. Responses should include the following. An ERP system helps companies
streamline their operations and helps management respond quickly to change. While an ERP
system is usually expensive to implement, the principal benefits include the alleviation of major
complications that arise when business systems do not coordinate with each other and the ability
to have one system that compartmentalizes different organizational functions into working units
that share with each other when it is beneficial to managing the organization.
18. LO 1.5 Describe what is meant by the term “balanced” in the term balanced scorecard
method.
Solution
“Balanced” refers to using financial and nonfinancial measures in evaluating all attributes of the
organization’s procedures balanced across four perspectives: financial, customer, internal
process, and learning and growth/capacity. It also refers to considering both high-level and low-
level measures using the company’s own strategic plan.
19. LO 1.5 What is corporate social responsibility, and who are the stakeholders?
Solution
Corporate social responsibility refers to an organization’s programs to evaluate and take
responsibility for that organization’s effects on environmental and social welfare. The
stakeholders include owners, investors, employees, customers, partners, communities,
competitors, media, and others.
Exercise Set A
EA1. LO 1.2 Indicate whether each statement describes financial accounting or managerial
accounting.
A. The information is directed at external users who are making decisions pertaining to
investing, extending credit, and other decisions.
B. The principal users are the organization’s managers.
C. The key focus is on the entity as a whole.
D. The rules and principles are very flexible.
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, E. The information gathered is usually available after an independent audit has been
completed.
Solution
A. Financial. B. Managerial. C. Financial. D. Managerial. E. Financial.
EA2. LO 1.2 Identify the following as True or False:
A. Managerial accounting reports must comply with the rules set in place by the FASB.
B. Financial accounting reports are typically general-purpose reports.
C. Financial accounting reports pertain to the entity as a whole, whereas managerial
accounting focuses more on subunits of the organization.
D. The main users of the financial accounting information are the internal users.
E. Managerial reports are prepared on an as-needed basis.
F. Financial accounting reports often must be audited at least annually by an independent
auditor.
Solution
A. False. B. True. C. True. D. False. E. True. F. True.
EA3. LO 1.2 Define each of these users of accounting information as an internal user of external
user:
A. Management
B. Employees
C. Investors
D. Creditors
E. Customers
F. Tax authorities
Solution
A. Internal. B. Internal. C. External. D. External. E. External. F. External.
EA4. LO 1.2 Discuss what information would be most useful for these users of accounting
information:
A. Management
B. Employees
C. Investors
D. Creditors
E. Customers
F. Tax authorities
Solution
Answers will vary. Responses should mention that internal users will need more detailed
information from managerial reports, while external users can only get information from the
financial reports.
EA5. LO 1.3 Taylor Speedy has prepared the following list of statements about managerial
accounting, financial accounting, and the functions of management. Identify each statement as
true or false.
A. Financial accounting centers on providing information to internal users.
B. Staff positions are directly involved in the company’s primary revenue-generating
activities.
C. Preparation of budgets is part of financial accounting.
D. Managerial accounting applies only to merchandising and manufacturing companies.
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