Managerial accounting focuses on providing information for external decision
Makers?
True or False
2. For each of the decisions, identify if it applies to a financial accounting or a managerial accounting
decision maker. Your answer should be written in as either financial accounting or a
managerial accounting. Include only one choice for each accounting decision.
Accounting Decision–Decision Maker
-Should the business expand to a new location?
-How do actual costs compare to budgeted costs?
3. Which accounting principle or assumption states that acquired assets and services should be
recorded at the actual amount paid?
A. Economic entity assumption
B. Cost principle
C. Monetary unit assumption
D. Going concern assumption
4. The equity of Alliance Company is $100,000 and the total liabilities are $90,000. The total assets
A. 10,000
B. 190,000
C. 200,000
D. 180,000
5. Blue Dog Boutique is famous for fashion collars and other high-end pet supplies. At the end of
a recent year, Blue Dog’s total assets added up to $48,000,000, and liabilities were
$32,000,000. How much was Blue Dog’s equity?
A $16,000,000
B. $32,000,000
C. $48,000,000
D. $80,000,000
6. Last year, Accounting Service Company (ASC) sold services on account for $150,000 and
incurred expenses totaling $96,000. At the end of the year, the balance for Accounts
Receivable was $20,000, and the balance for Accounts Payable was $16,000. What was
ASC’s net income or net loss for the year?
A. Net income of $54,000
B. Net income of $76,000
C. Net income of $170,000
D. Net income of $246,000
False. Managerial accounting primarily focuses on providing information for internal decision-makers within an organization, such as managers and executives, rather than external decision-makers like investors or creditors.
Should the business expand to a new location?
How do actual costs compare to budgeted costs?
“Should the business expand to a new location?” is a managerial accounting decision because it involves strategic planning and internal considerations, such as resource allocation and market analysis.
“How do actual costs compare to budgeted costs?” is also a managerial accounting decision as it pertains to monitoring and controlling costs within the organization.
The accounting principle or assumption that states that acquired assets and services should be recorded at the actual amount paid is:
B. Cost principle
The cost principle dictates that assets should be recorded at their historical cost, which is essentially the actual amount paid for them.
To calculate the equity of Alliance Company, you can use the formula:
Equity = Total Assets – Total Liabilities
Equity = $100,000 – $90,000 = $10,000
So, the equity of Alliance Company is $10,000.
Answer: A. $10,000
To calculate Blue Dog Boutique’s equity, you can use the same formula:
Equity = Total Assets – Total Liabilities
Equity = $48,000,000 – $32,000,000 = $16,000,000
So, Blue Dog Boutique’s equity is $16,000,000.
Answer: A. $16,000,000
To determine Accounting Service Company’s net income or net loss, you can use the following formula:
Net Income = Revenue – Expenses
Net Income = $150,000 – $96,000 = $54,000
However, you also need to account for changes in accounts receivable and accounts payable:
Net Income + Decrease in Accounts Receivable – Increase in Accounts Payable
$54,000 + ($20,000 – $16,000) = $54,000 + $4,000 = $58,000
So, Accounting Service Company’s net income for the year is $58,000.
Answer: Not provided in the multiple-choice options, but the correct answer is net income of $58,000.
In summary, managerial accounting focuses on providing information for internal decision-makers, while financial accounting is primarily concerned with external stakeholders. The cost principle dictates that assets should be recorded at their actual cost. The equity of a company is calculated as the difference between total assets and total liabilities. Blue Dog Boutique’s equity is $16,000,000, and Accounting Service Company’s net income for the year is $58,000 after accounting for changes in accounts receivable and accounts payable.
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