Question 1

Generally the higher the risk involved in an activity, the ________ the rate of return expected by investors.

Accepted Answer

A)  higher 
B)  lower 
C)  more stable 
D)  less frequent 
A)  higher 
B)  lower 
C)  more stable 
D)  less frequent

Question 2

During a period of rising prices, if a firm desires to report a low gross profit figure in hopes of reducing their income tax liability, the firm will use the ________ inventory valuation method.

Accepted Answer

A)  FIFO (first-in, first-out) 
B)  LIFO (last-in, first-out) 
C)  sliding scale 
D)  average cost 
A)  FIFO (first-in, first-out) 
B)  LIFO (last-in, first-out) 
C)  sliding scale 
D)  average cost

Question 3

Barkatorium Pet Supplies established a line of credit with its local bank and used (borrowed) $95,000 against it to purchase its first year's inventory. Since it is required to repay the money before the end of its fiscal year, the company's accountant lists this liability with the current liabilities on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 4

George works in the accounting department at the Green Goddess Lawn Services, where it is his job to record all transactions into journals. After completing this task, the next step in the accounting process is to

Accepted Answer

A)  prepare the firm's financial statements. 
B)  post the information to the ledger. 
C)  determine the tax liability of the firm. 
D)  balance the difference between assets and liabilities. 
A)  prepare the firm's financial statements. 
B)  post the information to the ledger. 
C)  determine the tax liability of the firm. 
D)  balance the difference between assets and liabilities.

Question 5

The steps in the accounting cycle do not need to be followed in the order stated. Monthly financial statements can be prepared with a good amount of accuracy, prior to posting in the ledger or preparing the trail balance.

Accepted Answer

A) True 
 B)False

Question 6

Retailers attempt to sell older merchandise before more recently acquired merchandise is sold. The assumptions made by the ________ method of inventory valuation are most consistent with this approach.

Accepted Answer

A)  FIFO (first-in, first-out) 
B)  LIFO (last-in, first-out) 
C)  average costing 
D)  accelerated costing 
A)  FIFO (first-in, first-out) 
B)  LIFO (last-in, first-out) 
C)  average costing 
D)  accelerated costing

Question 7

________ measures the speed of inventory moving through the firm and its conversion into sales.

Accepted Answer

A)  Asset turnover ratio 
B)  Inventory turnover ratio 
C)  Sales turnover ratio 
D)  Cost of goods sold turnover ratio 
A)  Asset turnover ratio 
B)  Inventory turnover ratio 
C)  Sales turnover ratio 
D)  Cost of goods sold turnover ratio

Question 8

A company's income statement is important to accountants and other stakeholders. It reveals a

Accepted Answer

A)  company's sources of funding. 
B)  company's ability to distribute goods or services in a timely manner. 
C)  company's ability to earn a profit over time. 
D)  company's capitalized value. 
A)  company's sources of funding. 
B)  company's ability to distribute goods or services in a timely manner. 
C)  company's ability to earn a profit over time. 
D)  company's capitalized value.

Question 9

As a bank loan officer, you are considering a loan application by Peak Performance Sporting Goods. The company has provided you with the following information from its balance sheet   Peak Performance's current ratio is:

Accepted Answer

A)  1.0. 
B)  1.5. 
C)  2.5. 
D)  3.0. 
A)  1.0. 
B)  1.5. 
C)  2.5. 
D)  3.0.

Question 10

In large companies, certified internal auditors are usually responsible for preparing tax returns and developing tax strategies for businesses.

Accepted Answer

A) True 
 B)False

Question 11

An analysis of the statement of cash flows can help a firm prevent cash shortages.

Accepted Answer

A) True 
 B)False

Question 12

________ earnings per share measures the amount of profit a firm earns per share of outstanding common stock when preferred stock, stock options, warrants, and convertible debt securities are also taken into account.

Accepted Answer

A)  Basic 
B)  Diluted 
C)  Restricted 
D)  Broad-based 
A)  Basic 
B)  Diluted 
C)  Restricted 
D)  Broad-based

Question 13

The return on sales ratio measures a firm's use of leverage.

Accepted Answer

A) True 
 B)False

Question 14

Music Masters sells a unique assortment of sheet music including just about any published music ever written before 1970. Its customers are high school and college band directors and choir directors who require several copies of the same music, including music written for a variety of instruments. To buy inventory for resale, the business seeks out wholesalers with large inventories. Due to the fact that cash flow is always an important concern, the owner keeps a watchful eye on how quickly various genres of sheet music sell. To help him in this assessment, which of the following ratios would be an important part of this company's financial analysis?

Accepted Answer

A)  asset turnover ratio 
B)  inventory turnover ratio 
C)  sales turnover ratio 
D)  cost of goods sold turnover ratio 
A)  asset turnover ratio 
B)  inventory turnover ratio 
C)  sales turnover ratio 
D)  cost of goods sold turnover ratio

Question 15

Liquidity refers to how fast an asset can be converted to cash.

Accepted Answer

A) True 
 B)False

Question 16

According to generally accepted accounting principles (GAAP), a firm must use the inventory valuation method that most accurately reflects the actual movement of goods through its inventory.

Accepted Answer

A) True 
 B)False

Question 17

The preparation of financial statements for people outside the firm (creditors, unions, suppliers, and others) is the goal of

Accepted Answer

A)  auditing. 
B)  financial accounting. 
C)  managerial accounting. 
D)  cost accounting. 
A)  auditing. 
B)  financial accounting. 
C)  managerial accounting. 
D)  cost accounting.

Question 18

The LIFO method of inventory valuation bases the cost of goods sold on the cost of

Accepted Answer

A)  merchandise that has been held in inventory for the longest period of time. 
B)  most recent merchandise purchased by the firm. 
C)  actual units customers purchased. 
D)  merchandise the firm acquired at the lowest cost. 
A)  merchandise that has been held in inventory for the longest period of time. 
B)  most recent merchandise purchased by the firm. 
C)  actual units customers purchased. 
D)  merchandise the firm acquired at the lowest cost.

Question 19

Which of the following is a key step in the accounting cycle?

Accepted Answer

A)  recording information into journals 
B)  collecting data from customers 
C)  forecasting expenses and revenues 
D)  preparing the advertising message 
A)  recording information into journals 
B)  collecting data from customers 
C)  forecasting expenses and revenues 
D)  preparing the advertising message

Question 20

Rapidly growing companies often buy increasing amounts of merchandise from suppliers on credit, and then sell the goods to their customers on credit. These companies sometimes have difficulty repaying their suppliers when customers who buy on credit don't pay on time. Firms that experience this difficulty need to do a better job of

Accepted Answer

A)  generating revenue. 
B)  controlling inventory. 
C)  managing cash flows. 
D)  balancing assets with liabilities. 
A)  generating revenue. 
B)  controlling inventory. 
C)  managing cash flows. 
D)  balancing assets with liabilities.

Exam 17: Understanding Accounting and Financial Information

Generally the higher the risk involved in an activity, the ________ the rate of return expected by investors.

During a period of rising prices, if a firm desires to report a low gross profit figure in hopes of reducing their income tax liability, the firm will use the ________ inventory valuation method.

George works in the accounting department at the Green Goddess Lawn Services, where it is his job to record all transactions into journals. After completing this task, the next step in the accounting process is to

The steps in the accounting cycle do not need to be followed in the order stated. Monthly financial statements can be prepared with a good amount of accuracy, prior to posting in the ledger or preparing the trail balance.

Retailers attempt to sell older merchandise before more recently acquired merchandise is sold. The assumptions made by the ________ method of inventory valuation are most consistent with this approach.

________ measures the speed of inventory moving through the firm and its conversion into sales.

A company's income statement is important to accountants and other stakeholders. It reveals a

As a bank loan officer, you are considering a loan application by Peak Performance Sporting Goods. The company has provided you with the following information from its balance sheet Peak Performance's current ratio is:

In large companies, certified internal auditors are usually responsible for preparing tax returns and developing tax strategies for businesses.

An analysis of the statement of cash flows can help a firm prevent cash shortages.

________ earnings per share measures the amount of profit a firm earns per share of outstanding common stock when preferred stock, stock options, warrants, and convertible debt securities are also taken into account.

The return on sales ratio measures a firm's use of leverage.

Liquidity refers to how fast an asset can be converted to cash.

According to generally accepted accounting principles (GAAP), a firm must use the inventory valuation method that most accurately reflects the actual movement of goods through its inventory.

The preparation of financial statements for people outside the firm (creditors, unions, suppliers, and others) is the goal of

The LIFO method of inventory valuation bases the cost of goods sold on the cost of

Which of the following is a key step in the accounting cycle?

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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