Question 1

In order to calculate the current ratio for your firm, you divide the total value of current assets by

Accepted Answer

A)  earnings per share. 
B)  the total value of current liabilities. 
C)  the total owners' equity. 
D)  the total cost of goods sold. 
A)  earnings per share. 
B)  the total value of current liabilities. 
C)  the total owners' equity. 
D)  the total cost of goods sold.

Question 2

The statement of cash flows identifies cash receipts and disbursements that result

Accepted Answer

A)  from selling goods and/or services, exclusively. 
B)  solely from a firm's investments. 
C)  from a firm's operations and investment activities, but not from financing activities. 
D)  from a firm's operations, investment, and financing activities. 
A)  from selling goods and/or services, exclusively. 
B)  solely from a firm's investments. 
C)  from a firm's operations and investment activities, but not from financing activities. 
D)  from a firm's operations, investment, and financing activities.

Question 3

The Sarbanes-Oxley Act prohibits accounting firms from providing certain nonauditing work (such as consulting services) to companies they audit.

Accepted Answer

A) True 
 B)False

Question 4

Ernesto borrowed money from a friend to acquire a liquor license for his new pub, and gave him a written promise to repay the amount within six months. Ernesto should list this business debt as an operating expense on his pub's balance sheet.

Accepted Answer

A) True 
 B)False

Question 5

Bob Stewart plans to visit his financial planner today to discuss investment strategy. As a young accountant, he knows he can afford to invest in a few riskier investments. Which of the following ratios will be an important measure of profitability for Bob?

Accepted Answer

A)  return on sales 
B)  return on equity 
C)  inventory turnover 
D)  acid test ratio 
A)  return on sales 
B)  return on equity 
C)  inventory turnover 
D)  acid test ratio

Question 6

If the goal of a business is to pay lower taxes on its income during an inflationary period, it is likely to use the FIFO inventory costing method.

Accepted Answer

A) True 
 B)False

Question 7

If the economy began experiencing a prolonged period of deflation in which the prices of most goods are falling, many firms would find that the LIFO method of inventory valuation would result in higher reported profits.

Accepted Answer

A) True 
 B)False

Question 8

Mini-Case
Minnie A. Wright-Hoff works as an accountant for Double Entry Doors, Inc. Her company sells and installs oversized garage doors needed by large vehicles. Most of Minnie's work involves helping department heads and other decision makers by measuring and reporting costs for their departments, and by identifying areas where departments are exceeding their budgets. However, as one of only three accountants employed by Double Entry Doors, Minnie is something of a "jill-of-all-trades" in terms of her accounting assignments. For example, she recently spent several hours summarizing all of the financial data in account ledgers to see if the information was correct and balanced. Her efforts revealed no problems, so she is now ready to start working on the firm's financial statements. Minnie is interested in this part of the accounting cycle because she likes to be one of the first to know the "bottom line" her company will report. She knows that she and the other accountants who work on these statements can influence the results by the choices they make about the way they report certain items.
-Minnie knows that Double Entry has a lot of short-term debt coming due in the next year, and wants to make sure that the company will have the ability to make the required payments. Given a troubling downturn in construction activity over the past couple of months, she is not confident that Double Entry can count on selling its current inventory of doors before the debt comes due. Which of the following ratios would be most relevant to Minnie?

Accepted Answer

A)  current ratio 
B)  debt to equity ratio 
C)  return on sales 
D)  acid-test ratio 
A)  current ratio 
B)  debt to equity ratio 
C)  return on sales 
D)  acid-test ratio

Question 9

Rent, depreciation, and salaries are examples of

Accepted Answer

A)  current assets. 
B)  current liabilities. 
C)  owners' equity. 
D)  operating expenses. 
A)  current assets. 
B)  current liabilities. 
C)  owners' equity. 
D)  operating expenses.

Question 10

Skilled professionals who are primarily responsible for the development of strategies to minimize taxes are called

Accepted Answer

A)  tax accountants. 
B)  certified public accountants. 
C)  certified management accountants. 
D)  certified internal auditors. 
A)  tax accountants. 
B)  certified public accountants. 
C)  certified management accountants. 
D)  certified internal auditors.

Question 11

Mallory is running an income statement on her QuickBooks computer accounting program. Which of the following accounts will be used to calculate gross profit?

Accepted Answer

A)  revenues, net sales, depreciation, and operating expenses 
B)  revenues, general expenses 
C)  revenues, cost of goods sold, tax expenses, net income before taxes 
D)  revenues, cost of goods sold 
A)  revenues, net sales, depreciation, and operating expenses 
B)  revenues, general expenses 
C)  revenues, cost of goods sold, tax expenses, net income before taxes 
D)  revenues, cost of goods sold

Question 12

The income statement reports the difference between a firm's assets and its liabilities as of a certain date.

Accepted Answer

A) True 
 B)False

Question 13

Net profit refers to

Accepted Answer

A)  the result of deducting liabilities from the assets of the firm. 
B)  the result of subtracting cost of goods sold from revenues. 
C)  the result of deducting depreciation expense from revenues. 
D)  the net earnings after the deduction of all expenses, including tax expense. 
A)  the result of deducting liabilities from the assets of the firm. 
B)  the result of subtracting cost of goods sold from revenues. 
C)  the result of deducting depreciation expense from revenues. 
D)  the net earnings after the deduction of all expenses, including tax expense.

Question 14

The work of a certified management accountant is intended to enable people outside of the organization to make investment decisions.

Accepted Answer

A) True 
 B)False

Question 15

Portable Pet Care, Inc., has recorded the following on its income statement for the period ending December 31, 2019:
   The return on sales = 34%. This return is outstanding and there is no need to compare this return to competitors in the veterinary services industry.

Accepted Answer

A) True 
 B)False

Question 16

Liquidity refers to how quickly liabilities must be paid.

Accepted Answer

A) True 
 B)False

Question 17

Leverage ratios are concerned with the extent to which a firm relies on borrowed funds in its operations.

Accepted Answer

A) True 
 B)False

Question 18

Accounting transactions are very important to a firm's operations. Which of the following activities would affect the firm's account balances?

Accepted Answer

A)  buying and selling goods and services 
B)  interviewing prospective employees 
C)  understanding economic reports 
D)  forecasting consumer demand 
A)  buying and selling goods and services 
B)  interviewing prospective employees 
C)  understanding economic reports 
D)  forecasting consumer demand

Question 19

We would expect the inventory turnover ratio for a ski shop to be ________ than the turnover for a convenience store.

Accepted Answer

A)  higher 
B)  more meaningful 
C)  lower 
D)  less helpful 
A)  higher 
B)  more meaningful 
C)  lower 
D)  less helpful

Question 20

Many business decisions are made in hopes of improving a firm's bottom line. Which of the following financial statements will reveal a firm's bottom line?

Accepted Answer

A)  income statement 
B)  balance sheet 
C)  statement of cash flows 
D)  trial balance 
A)  income statement 
B)  balance sheet 
C)  statement of cash flows 
D)  trial balance

Exam 17: Understanding Accounting and Financial Information

In order to calculate the current ratio for your firm, you divide the total value of current assets by

The statement of cash flows identifies cash receipts and disbursements that result

The Sarbanes-Oxley Act prohibits accounting firms from providing certain nonauditing work (such as consulting services) to companies they audit.

Ernesto borrowed money from a friend to acquire a liquor license for his new pub, and gave him a written promise to repay the amount within six months. Ernesto should list this business debt as an operating expense on his pub's balance sheet.

Bob Stewart plans to visit his financial planner today to discuss investment strategy. As a young accountant, he knows he can afford to invest in a few riskier investments. Which of the following ratios will be an important measure of profitability for Bob?

If the goal of a business is to pay lower taxes on its income during an inflationary period, it is likely to use the FIFO inventory costing method.

If the economy began experiencing a prolonged period of deflation in which the prices of most goods are falling, many firms would find that the LIFO method of inventory valuation would result in higher reported profits.

Rent, depreciation, and salaries are examples of

Skilled professionals who are primarily responsible for the development of strategies to minimize taxes are called

Mallory is running an income statement on her QuickBooks computer accounting program. Which of the following accounts will be used to calculate gross profit?

The income statement reports the difference between a firm's assets and its liabilities as of a certain date.

Net profit refers to

The work of a certified management accountant is intended to enable people outside of the organization to make investment decisions.

Portable Pet Care, Inc., has recorded the following on its income statement for the period ending December 31, 2019: The return on sales = 34%. This return is outstanding and there is no need to compare this return to competitors in the veterinary services industry.

Liquidity refers to how quickly liabilities must be paid.

Leverage ratios are concerned with the extent to which a firm relies on borrowed funds in its operations.

Accounting transactions are very important to a firm's operations. Which of the following activities would affect the firm's account balances?

We would expect the inventory turnover ratio for a ski shop to be ________ than the turnover for a convenience store.

Many business decisions are made in hopes of improving a firm's bottom line. Which of the following financial statements will reveal a firm's bottom line?

Taking Risks and Making Profits Within the Dynamic Business Environment

Understanding Economics and How It Affects Business

Doing Business in Global Markets

Demanding Ethical and Socially Responsible Behavior

How to Form a Business

Entrepreneurship and Starting a Small Business

Management and Leadership

Structuring Organizations for Todays Challenges

Production and Operations Management

Motivating Employees

Human Resource Management: Finding and Keeping the Best Employees

Dealing With Employeemanagement Issues

Marketing: Helping Buyers Buy

Developing and Pricing Goods and Services

Distributing Products

Using Effective Promotions

Financial Management

Using Securities Markets for Financing and Investing Opportunities

Money, Financial Institutions, and the Federal Reserve

Working Within the Legal Environment

Using Technology to Manage Information

Managing Risk

Managing Personal Finances

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