Exam 11: Understanding Accounting

________ is the formal recording and reporting of revenues in financial statements. Compliance Materiality Full disclosure Matching Revenue recognition

John wants to determine gross profit for his company. To do so, he must subtract the cost of goods sold from gross sales revenue.

Financial and managerial accounting can be distinguished by the different users they serve.

________ are purchased as short-term investments and are only slightly less liquid than cash. Prepaid expenses Patents Accounts receivable Marketable securities Futures

A fixed asset is an amount due from a customer who has purchased goods on credit. an asset with long-term use or value, such as land, buildings, and equipment. an expense, such as rent, that is paid before the upcoming period in which it is due. an asset that can or will be converted to cash within the following year. a nonphysical asset, such as a patent or trademark, that has economic value in the form of expected benefit.

Which of the following is correct with respect to the issue of owners' equity? It is the amount of cash listed on the balance sheet. It is the amount of money the owners would receive if they sold all of a company's assets and paid all of its liabilities. If a company's assets exceed its liabilities, owners' equity equals $10 000 for each dollar of assets. If a company's liabilities exceed its assets, owners' equity equals minus $10 000 for each dollar of liabilities. All of these are correct.

If current assets are $10 000 and current liabilities are $5000, the current ratio is 0.5.

Which of the following is designed primarily for internal use by a company's managers (e.g., the production manager)? Income statements Statement of retained earnings Budget Balance sheets Statements of cash flow

________ ratios give investors an idea of what returns they can expect on their investment; dividing ________ by total owners' equity is one such ratio. Profitability; earnings per share Long-term liquidity; net income Activity; average inventory Short-term liquidity; earnings per share Profitability; net income

Depreciation is used to recognize the cost of an asset in the year in which it is purchased.

The financial statement that shows the status of assets, liabilities, and owners' equity at a particular point in time is the balance sheet.

Which of the following will calculate the current ratio? Current liabilities divided by current assets Current assets divided by current liabilities Current assets minus current liabilities Current assets divided by total liabilities Current liabilities minus current assets

The various users of accounting information include business managers, employees and unions, regulatory agencies, lenders, and the public.

ABC Company has net income of $5 million, $40 million of assets, and $10 million of liabilities. The number of outstanding shares of stock is 3 870 000 shares. What are earnings per share? $1.29 $0.77 $2.35 $7.75 Earnings per share cannot be computed with the information provided

A budget is a detailed financial plan of estimated receipts and expenditures for the future.

Explain the accounting equation.

The field of accounting that is concerned with external users of a company's financial information is called managerial accounting. bookkeeping. public accounting. financial accounting. auditing.

Kershner says: "Our income statement should be looking good this year. We've been doing excellent business this year, so we have a lot of gross sales. The company should be in good shape." Michaels replies: "It remains to be seen how our income statement will look overall. In spite of strong sales revenue, the overall income statement might not be as good as we might hope." Which of the following does Michaels assume? Revenues this year were not as high as last year's. Revenues are not as high as Kershner thinks they are. Selling expenses exceeded administrative expenses this year. Other factors must be taken into account to arrive at an income statement. Income taxes will be high this year.

What is the formula for determining owners' equity? Assets minus liabilities Assets plus liabilities Assets minus goodwill Current assets minus current liabilities There is no formula for computing owners' equity

An activity ratio measures a firm's sales per employee. frequency of purchases. level of inventory. efficiency in using its assets. sales per selling expense dollar.