Exam 17: Understanding Accounting and Financial Information

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

The Sarbanes-Oxley Act strengthens the protection for whistleblowers who report wrongful actions of company officers.

The Balance Sheet, the Statement of Cash Flows, and the are three key financial statements prepared by accountants.

involves the review and evaluation of the records that are used to prepare the organization's financial statements.

While reviewing the books at his firm, Chad Cooper 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, Chad felt confident that the changes needed clarification. To get another opinion, Chad suggested to the company's controller that the firm solicit .

When valuing items in inventory for financial reporting purposes, generally accepted accounting principles (GAAP) requires firms to value the cost of goods sold by assuming that the items that have been in inventory the longest are the ones that are sold first.

Preferred Pet Care Clinic, Inc is a mobile veterinary care company that travels to its clients' homes to administer veterinary care to well and sick pets. Its business is booming, with a full schedule of appointments each week. On a weekly basis, the office manager orders a larger amount of vaccines, antibiotics, and other products from its suppliers with the understanding that it will pay for these supplies in one month's time. A sizeable percentage of Preferred Pet Care's clients are elderly persons who are on fixed incomes. These customers eventually pay their bills, but usually not upon receipt of service. It sometimes takes them upwards of two months to remit. As an accounting intern willing to advise the owner, which of the following statements is important to your analysis?

McCartney Consulting Group is a management-consulting firm that provides its expertise to businesses that employ its services. Since it does not hold an inventory of goods or produce any goods itself:

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

The books where accounting data are first entered are called ledgers.

FIFO and LIFO are two common methods used to compute the depreciation of tangible assets.

The Statement of Cash flows identifies cash receipts and disbursements that result .

FIFO is a method of inventory valuation that assumes the items most recently purchased are also the items that are sold first.

The basic earnings per share and the diluted earnings per share would have quite different values for a firm that relied heavily on preferred stock and convertible debt securities to acquire funds.

The statement of cash flows shows a firm's revenues, costs of goods sold, expenses, and net income.

Accounting provides information about the financial condition and operating performance of a firm.

If the economy began experiencing a prolonged period of deflation in which the prices of most goods are falling, many firms would find that the LIFO method of inventory valuation would result in higher reported profits.

The "bottom line" of an income statement shows the firm's:

The Sarbanes-Oxley Act prohibits accounting firms from providing certain non-auditing work (such as consulting services) to companies they audit.

Preferred Pet Care, Inc. successfully took out a loan for $130,000 from Southwest Bank. It used $80,000 of this loan to pay-off an existing loan that had a higher interest rate, and purchased X-ray equipment with the remaining funds. These events were noted as financing and investing activities on its balance sheet.