Exam 11: Understanding Accounting

How is the return on equity ratio calculated? Operation income divided by retained earnings Net income divided by retained earnings Net income divided by total owners' equity Operating income divided by total owners' equity Net income divided by common stock

Which of the following calculates the debt-to-owners' equity ratio? Long-term liabilities divided by owners' equity Current liabilities divided by owners' equity Long-term liabilities divided by retained earnings Total liabilities divided by retained earnings Total liabilities divided by owners' equity

Explain the three basic financial statements and show how they reflect the activity and financial condition of a business.

Streeter & Sons is a regional service company that has been in business for a few years, but has not employed a controller or anyone else full-time to keep track of its financial state. The company needs to take a good look at its financial state to determine whether it needs to make any changes in its practices, in order to prevent possible financial meltdown. Which of the following, if true, would strengthen the case that Streeter & Sons is profitable? The company's sales revenue is low relative to its cost of goods sold. The company's cost of goods sold is low relative to its sales revenue. The company has had the same number of customers for some time. The company has had the same owners over its lifetime. The company's selling expenses are high relative to its administrative expenses.

What is the difference between operating income and net income?

What is the accounting term that describes an amount paid for an existing business above the value of its other assets? A patent A copyright Goodwill A franchise fee Reputation

Andy's line of credit with a local bank is likely a(n) intangible asset. prepaid expense. current liability. account receivable. long-term liability.

Madeline wants to determine operating income for her company. To do so, she must subtract both the cost of goods sold and all operating expenses from gross sales revenue.

Marlin wants to calculate the inventory turnover ratio for his company. He has the following information: beginning inventory = $30 000; ending inventory = $20 000; the cost of goods sold = $100 000. From this he concludes that the inventory turnover ratio is 4.0.

At Lexi Corp., sales revenue is $20 million, the cost of goods sold is $14 million, operating expenses are $3 million, and income taxes are $1 million. What is the company's operating income? $6 million $17 million $3 million $2 million None of these

What is earnings per share? How do investors use this information?

What is the purpose of a balance sheet? What are the major types of information shown on the balance sheet?

Max Corp. has total assets of $100 million and total liabilities of $30 million. Last year it earned a profit of $3 million. What is owners' equity at Max Corp.? $3 million $100 million $103 million $73 million $70 million

If you wanted to see how much Mega Computer owed your company, where would be the best place to look? Income statement Balance sheet Cash flow statement Budget Net income statement

Identify the solvency ratios and what they measure.

Government agencies would be most interested in the output of ___________ accountants, while company salespeople would be most interested in the output of ______________ accountants. public; private private; public managerial; financial financial; managerial financial; financial

Aardvark is a small pest-control business that has 30 employees. The company started business within the past year and needs to make a decision on how best to make sure its finances are managed well as the company continues to grow its customer base and its business. Which of the following, if true, would NOT strengthen the case for Aardvark's closely monitoring its cash flow? The company needs to make sure it is not spending too much. The company needs to make sure it is generating enough revenue. The company needs to make sure its employees perform well. The company needs to make sure it can always pay its bills. The company needs to make sure it can make capital expenditures.

A(n) ________ is a debt owed by a firm to an outside organization or individual. liability owners' equity debit asset credit

A(n) ________ examines a company's accounting system to determine whether its financial reports fairly present its operations. tax analysis preliminary examination company-wide analysis portfolio analysis audit

________ are non-physical assets, such as a patent or trademark, that have economic value in the form of expected benefits. Intangible assets Fixed assets Prepaid assets Current assets Long-term assets