Chapter F2: Economic Decision Making
Multiple Choice
1.
*
All of the following statements are true regarding decision making
except --
the ideal solution will be selected.
judgment is fundamental to decision making.
the aim of all decision making is to obtain some type of reward,
either economic or personal.
reward requires sacrifice.
Hint for question 1
Absolute certainty rarely, if ever, exists.
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2.
The following statement is true regarding decision making:
A student could earn $200 each week at a job but instead
chooses to attend college classes. The $200 is referred to as the
reward.
Studying the relationship between rewards and sacrifices is
referred to as cost/benefit analysis.
An example of an intrinsic reward is money.
*
Nonroutine decisions are decisions that do not recur and are
complex in nature.
Hint for question 2
Routine decisions involve usually result in automatic responses.
3.
The following statement is true regarding information processing
styles:
Systematic thinkers prefer to solve problems by looking at the
overall situation - the big picture.
Intuitive thinkers prefer to solve problems by careful analysis
and methodically reviewing detail.
Everyone tends to use both the intuitive and systematic styles,
but tend to prefer one style over the other.
*
Intuition can be both learned and taught.
Hint for question 3
Few, if any, people use only one style of processing information.
4.
The following statement is true regarding reasoned decision
making:
Only systematic thinkers can use the reasoned decision-making
approach to problem solving.
Determining the real problem is frequently the most difficult task
in the decision-making process.
*
The best alternatives usually emerge quickly.
The final step in the decision-making process is to select the
best alternative.
Hint for question 4
Decision making would be easy if the identity of the real decision was clear from
the beginning of the process.
5.
The following statement is true regarding values and ethics:
Rules ethics is derived from the teachings of Socrates, Plato,
and Aristotle.
Even though two people rarely hold exactly the same personal
values, they can agree on the broader issues of moral judgment
and ethical conduct.
*
Virtues ethics imposes rules that dictate how to react to a given
situation.
Rules ethics requires each person determine the kind of person
they want to be. This requires considerable time for selfexamination.
Hint for question 5
Rules ethics are imposed by others and virtues ethics come from within a
person.
6.
The following statement is true regarding the advantages and
disadvantages of group versus individual decision making:
One advantage of individual decision making is that a greater
base of knowledge is brought to the decision-making process.
One advantage of group decision making is that no time is
wasted in organized meetings and listening to comments you know
will not work.
An individual decision is only as good as that individual's
judgment and grasp of the situation.
*
Group decision making is always superior to decisions made by
an individual.
Hint for question 6
An advantage of group decision making is the variety of thought and expertise
that can be brought to the decision.
7.
The following statement is true regarding internal and external
decision makers:
Internal decision makers have limited access to the financial
information of a company.
External decision makers make decisions about a company-about investing in their stock, about becoming a supplier, or about
lending them money.
*
Financial accounting generates the information used by the
internal decision makers - primarily management.
Financial accounting generates information for the company--for
setting the annual budget, for setting the selling price of an item, or
for entering a different market.
Hint for question 7
Accountants provide financial information for internal and external users and
management information for internal users. Internal decision makers make
decisions for a company.
8.
All economic decisions involve attempts to predict future cash flows
by searching for --
the uncertainty of cash flows.
the timing of cash flows.
the amount of the cash flows.
*
all of the above.
Hint for question 8
Economic decisions attempt to predict if, when, and how much the cash flows
will be.
9.
Each of the three questions predicting future cash flows has two
parts - "return on investment" and the "return of investment." The
following statement is true regarding these questions:
Savings account interest of $200 is an example of a return of
investment.
*
Profits earned by a corporation is an example of a return on
investment.
Repaying $2,000 originally borrowed is an example of a return
on investment.
All of the above statements are true.
Hint for question 9
Return of an investment is the return of the original investment. Return on
investment is return over and above the original investment.
10.
The following statement is true regarding accounting data and
accounting information:
Accounting data and accounting information are
interchangeable terms.
*
Data becomes information when it is put into a usable form.
Information is the raw results of transactions.
A list of teachers names is information.
Hint for question 10
Information must be useful to its reader.
11.
The two primary qualities of useful accounting information are --
timeliness and feedback value.
verifiability and neutrality.
*
relevance and reliability.
comparability and consistency.
Hint for question 11
Useful accounting information must have a bearing on the particular situation
and be reasonably accurate.
The following statement is true regarding the secondary qualities of
useful accounting information:
12.
Verifiability is a secondary quality that occurs when two or more
persons working independently of each other arrive at the same
conclusion.
Consistency allows decision makers to compare one alternative
to another.
Comparability refers to using the same method of measurement
over time.
Secondary qualities increase decision-making confidence.
*
Hint for
Question 12
Quality accounting information must allow users to identify similarities and
differences between two sets of information and have conformity across time.
Chapter F2: Economic Decision Making
True or False
1.
Good decision making eliminates uncertainty.
TRUE
*
FALSE
Hint for question 1
All of the factors regarding a decision and its outcomes are rarely known.
Therefore, certainty rarely, if ever, exists.
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2.
Nonroutine decisions are complex.
TRUE
*
FALSE
Hint for question 2
An unfamiliar problem is considered nonroutine because of its infrequency, not
because of its complexity.
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3.
*
Good ethics is good business.
TRUE
FALSE
Hint for question 3
Business people constantly face ethical dilemmas. Companies that hire ethical
persons and follow ethical practices most times rise above unethical firms.
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4.
*
Correct data items must be gathered and converted into useful
information before they are of any help to economic decision makers.
TRUE
FALSE
Hint for question 4
Accounting data refers to the raw results of transactions. Accounting data
becomes accounting information when it is put into a usable form.
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5.
*
All important economic decisions require the use of accounting
information.
TRUE
FALSE
Hint for question 5
Economic decisions are business decisions involving money. All
monetary business transactions are recorded in the accounting records.
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Submit for Grade
Chapter F2: Economic Decision Making
Fill In The Blanks
1.
Cost/benefit analysis studies the relationship between __________ and
sacrifice.
uncertainty
ethics
*
reward
risk
Hint for question 1
Sacrifice is another word for cost, and benefit is another word for what?
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2.
The __________ information processing style approaches problem
solving by breaking problems into their component parts and then
analyzing those parts in great detail.
intuitive
nonroutine
routine
*
systematic
Hint for question 2
Which style analyzes a problem by breaking a problem down into smaller parts?
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3.
__________ accounting is the branch of accounting that provides useful
information to investors and creditors.
External
Managerial
*
Financial
Internal
Hint for question 3
What type of accounting information are investors and creditors most interested
in?
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4.
When a company runs out of __________ a company dies.
revenue
equity
*
cash
profit
Hint for question 4
What is needed so we can continue to go to college and pay our other bills?
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5.
To be considered __________, accounting information must be timely,
and have predictive or feedback value.
reliable
comparable
*
relevant
consistent
Hint for question 5
Comparable, consistent, relevant, or reliable?
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Submit for Grade
Chapter F2: Economic Decision Making
Essay Questions
1.
There are two general information processing styles - the intuitive style
and the systematic style. State which style is more related to the sevenstep "reasoned decision making" problem-solving model. Explain why.
2.
Why is a group decision usually better than a decision made by only one
individual? When may a group decision not be better that a decision made
by only one individual?
3.
Accounting information is a key ingredient of good decision making. List
and describe the four qualitative characteristics of useful accounting
information.