Question 1

Generally, a high ________ ratio could lead investors and creditors to view the company as being very risky.

Accepted Answer

A)  debt to owners' equity 
B)  acid-test 
C)  diluted earnings per share 
D)  inventory turnover 
A)  debt to owners' equity 
B)  acid-test 
C)  diluted earnings per share 
D)  inventory turnover

Question 2

Although managers who work for large firms must know something about accounting, people who run small businesses only need to know the basics of bookkeeping.

Accepted Answer

A) True 
 B)False

Question 3

Marissa is taking her first course in accounting this semester. One of the first things she learns is that revenue and net income mean the same thing.

Accepted Answer

A) True 
 B)False

Question 4

The acid-test ratio emphasizes the ability to convert inventory quickly into cash.

Accepted Answer

A) True 
 B)False

Question 5

Double-entry bookkeeping can help identify a recording error made by a bookkeeper.

Accepted Answer

A) True 
 B)False

Question 6

While reviewing the books at his firm, Colin noticed discrepancies between how the firm recorded revenues last year and how it elected to record revenues during the recent quarter of the current year. As a recent business graduate, Colin felt confident that the changes needed clarification. To get another opinion, Colin suggested to the company's controller that the firm solicit

Accepted Answer

A)  the assistance of the Government Accounting Standards Board. 
B)  the services of a certified internal auditor. 
C)  the services of a senior executive at the IRS. 
D)  the services of an independent auditor. 
A)  the assistance of the Government Accounting Standards Board. 
B)  the services of a certified internal auditor. 
C)  the services of a senior executive at the IRS. 
D)  the services of an independent auditor.

Question 7

The debt to owners' equity ratio is a common type of liquidity ratio.

Accepted Answer

A) True 
 B)False

Question 8

Accounting information is NOT relevant for nonprofit organizations.

Accepted Answer

A) True 
 B)False

Question 9

The balance sheet is set up to reflect the Fundamental Accounting Equation. This equation shows

Accepted Answer

A)  Assets = Liabilities + Owners' equity. 
B)  Revenues - Expenses = Gross profit. 
C)  Cash inflows = Cash outflows. 
D)  Current assets + Current liabilities = Owners' equity. 
A)  Assets = Liabilities + Owners' equity. 
B)  Revenues - Expenses = Gross profit. 
C)  Cash inflows = Cash outflows. 
D)  Current assets + Current liabilities = Owners' equity.

Question 10

________ is the systematic write-off of the value of a tangible asset over its useful life.

Accepted Answer

A)  Expense structuring 
B)  Depreciation 
C)  Capital budgeting 
D)  Gross margin allocation 
A)  Expense structuring 
B)  Depreciation 
C)  Capital budgeting 
D)  Gross margin allocation

Question 11

The accounting profession is divided into two main fields: bookkeeping and auditing.

Accepted Answer

A) True 
 B)False

Question 12

Once a trial balance has been prepared, the next step of the accounting cycle involves

Accepted Answer

A)  posting the information to the correct ledger accounts. 
B)  completing a balance sheet and ratio analysis. 
C)  preparing financial statements such as the balance sheet, income statement, and statement of cash flows. 
D)  classifying the transactions into logical categories. 
A)  posting the information to the correct ledger accounts. 
B)  completing a balance sheet and ratio analysis. 
C)  preparing financial statements such as the balance sheet, income statement, and statement of cash flows. 
D)  classifying the transactions into logical categories.

Question 13

Accounting is NOT important for nonprofit organizations since financial data is not critical to their success.

Accepted Answer

A) True 
 B)False

Question 14

Personalized Products is a small manufacturing firm specializing in custom-order tool and die work. A computerized accounting system would help Personalized Products by

Accepted Answer

A)  making key accounting and financial decisions. 
B)  helping management identify cash flow and other financial difficulties more quickly. 
C)  eliminating the need to prepare financial statements and other reports. 
D)  eliminating the need to perform the three middle steps of the accounting cycle. 
A)  making key accounting and financial decisions. 
B)  helping management identify cash flow and other financial difficulties more quickly. 
C)  eliminating the need to prepare financial statements and other reports. 
D)  eliminating the need to perform the three middle steps of the accounting cycle.

Question 15

Barkatorium Pet Supplies recently hired an accountant to make sense of each day's transactions, and keep better financial records for the business. The accountant showed the owner that the ledger in a computerized accounting system would automatically take entries and post them to the correct accounts in the ledger, making the bookkeeping tasks much easier.

Accepted Answer

A) True 
 B)False

Question 16

Important provisions of the Sarbanes-Oxley Act

Accepted Answer

A)  approve corporate loans to directors of the company. 
B)  encourage the destruction of financial documents. 
C)  require the CEO and CFO of corporations to certify the accuracy of financial reports. 
D)  encourage outside CPA firms to deliver several services to their clients, including auditing services and consulting services. 
A)  approve corporate loans to directors of the company. 
B)  encourage the destruction of financial documents. 
C)  require the CEO and CFO of corporations to certify the accuracy of financial reports. 
D)  encourage outside CPA firms to deliver several services to their clients, including auditing services and consulting services.

Question 17

A ________ summarizes all the data from the account ledgers to verify that they are correct and balanced.

Accepted Answer

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

Question 18

A series of high-profile scandals in the early 2000s put the accounting profession under intense scrutiny.

Accepted Answer

A) True 
 B)False

Question 19

The three important financial statements prepared by accountants are

Accepted Answer

A)  ledger, journal, and trial balance. 
B)  cash budget, capital budget, and master budget. 
C)  revenue summary, expense summary, and consolidation statement. 
D)  balance sheet, income statement, and statement of cash flows. 
A)  ledger, journal, and trial balance. 
B)  cash budget, capital budget, and master budget. 
C)  revenue summary, expense summary, and consolidation statement. 
D)  balance sheet, income statement, and statement of cash flows.

Question 20

Explain the difference between current, fixed, and intangible assets. Give two examples of each of these different types of assets.

Accepted Answer

Current assets are items that can be con

Exam 17: Understanding Accounting and Financial Information

Generally, a high ________ ratio could lead investors and creditors to view the company as being very risky.

Although managers who work for large firms must know something about accounting, people who run small businesses only need to know the basics of bookkeeping.

Marissa is taking her first course in accounting this semester. One of the first things she learns is that revenue and net income mean the same thing.

The acid-test ratio emphasizes the ability to convert inventory quickly into cash.

Double-entry bookkeeping can help identify a recording error made by a bookkeeper.

The debt to owners' equity ratio is a common type of liquidity ratio.

Accounting information is NOT relevant for nonprofit organizations.

The balance sheet is set up to reflect the Fundamental Accounting Equation. This equation shows

________ is the systematic write-off of the value of a tangible asset over its useful life.

The accounting profession is divided into two main fields: bookkeeping and auditing.

Once a trial balance has been prepared, the next step of the accounting cycle involves

Accounting is NOT important for nonprofit organizations since financial data is not critical to their success.

Personalized Products is a small manufacturing firm specializing in custom-order tool and die work. A computerized accounting system would help Personalized Products by

Important provisions of the Sarbanes-Oxley Act

A ________ summarizes all the data from the account ledgers to verify that they are correct and balanced.

A series of high-profile scandals in the early 2000s put the accounting profession under intense scrutiny.

The three important financial statements prepared by accountants are

Explain the difference between current, fixed, and intangible assets. Give two examples of each of these different types of assets.

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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