Exam 11: Understanding Accounting

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

What does return on equity measure? The amount of pre-tax profit earned for each dollar invested The amount of profit earned for each share of stock The amount of profit earned for each dollar of previous profit retained in the business The amount of profit earned for each dollar invested The amount of pre-tax profit earned for each share of stock

A low inventory turnover ratio means efficient operations.

________ is an asset that represents the cost of merchandise which was made or bought for sale to customers and that is still on hand. Accounts payable Prepaid expenses Cost of goods sold Merchandise inventory Accounts receivable

Jerry wants to calculate gross profit for his business. Which formula should he use? Operating expenses minus income taxes Sales revenue minus income taxes Sales revenue minus operating expenses Sales revenue minus cost of goods sold Operating income minus income taxes

What three services do CA firms typically provide? Ratio analysis, journal preparation, and ledger preparation Tax services, budget preparation, and ratio analysis Audit services, ratio analysis, and tax collection Tax services, audit services, and management services Owners' equity analysis, journal and ledger preparation, and tax collection

________ allows financial statement users to see how much net gain results from the assets that had to be given up in order to generate revenues during a given period. Materiality Revenue recognition Compliance Full disclosure Matching

A balance sheet would not be able to help a manager answer which question? Is it a good time to try to grow the business? Can the company survive if a period of low revenues happens? Does the company have an excessive number of employees? Is the company able to take on more debt? What is the total value of all of the company's assets?

What is goodwill?

________ calls attention to problems and helps managers carry out the planning, decision making, and controlling functions. Budgeting Financial accounting Auditing Managerial accounting Generally accepted accounting principles

Prahbat is looking at a financial statement produced by Iron Corp. The statement lists the company's annual revenues, its expenses, and its profit. Prahbat is looking at a(n) cash flow statement. revenue-expense statement. balance sheet. budget. income statement.

Earnings per share determines the firm's ability to pay its long-term debt.

Janice is a bookkeeper. Her primary function would be to generate financial statements. measure business performance. record accounting transactions. complete the same tasks as accountants do. determine the value of the firm to investors.

Why do business firms have private accountants? What do these individuals do for the company?

According to the accounting equation, if assets equal $4000 and liabilities equal $1500, then owner's equity would equal $5500. $2500. $3500. $8000. it is not possible to tell with the information given.

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, if true, would strengthen Kershner's argument? The total operating expenses were high in the current year. The company's rent went up 30 percent from the previous year. The cost of goods sold was low compared to gross sales. The company is a small one compared to its competitors. The company has a solid core of fixed assets.

What is the accounting equation?

Based on the revenue recognition principle, earnings may not be reported until the earnings cycle is completed.

Under which condition is owners' equity positive? Assets are greater than liabilities. Assets and liabilities are equal. Credits exceed debits. Liabilities are greater than assets. Debits exceed credits.

Executives at Belize Inc. want to see the company's short-term solvency ratios. What question do they most likely want to have answered? Can immediate debts be paid without obtaining more loans? Is there enough inventory to fulfill sales demands? How much inventory does the company have on hand? How much debt is the company carrying? Are the company's products priced correctly to maximize revenue?