Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

When creating the income statement, which of the following statements is accurate?

Accepted Answer

A)  revenues, minus general operating expenses = gross profit. 
B)  revenues, minus tax expense = gross profit. 
C)  revenues, minus depreciation expense = gross profit. 
D)  revenues, minus cost of goods sold = gross profit. 
A)  revenues, minus general operating expenses = gross profit. 
B)  revenues, minus tax expense = gross profit. 
C)  revenues, minus depreciation expense = gross profit. 
D)  revenues, minus cost of goods sold = gross profit.

Question 3

A person's pulse rate and blood pressure are indicators of a person's health. Similarly, ________ can help assess the health of a business.

Accepted Answer

A)  financial statements 
B)  production schedules 
C)  transactions 
D)  databases 
A)  financial statements 
B)  production schedules 
C)  transactions 
D)  databases

Question 4

Net income before taxes is found by deducting total operating expenses from gross profit before factoring tax expense.

Accepted Answer

A) True 
 B)False

Question 5

The balance sheet is composed of the following types of accounts:

Accepted Answer

A)  revenue, expenses, and earnings. 
B)  operating expenses, cash flow, and capital expenditures. 
C)  capital, cost, and valuation. 
D)  assets, liabilities, and owners' equity. 
A)  revenue, expenses, and earnings. 
B)  operating expenses, cash flow, and capital expenditures. 
C)  capital, cost, and valuation. 
D)  assets, liabilities, and owners' equity.

Question 6

Which of the following agencies would have the greatest impact on the methods used to record, classify, summarize, and interpret accounting information for the State of Kentucky's Department of Transportation?

Accepted Answer

A)  Commission on Accounting Practices for State Governments 
B)  Government Accounting Standards Board 
C)  Independent Not-For-Profit Accounting Standards Board 
D)  Institute for Public Sector Accounting Standards 
A)  Commission on Accounting Practices for State Governments 
B)  Government Accounting Standards Board 
C)  Independent Not-For-Profit Accounting Standards Board 
D)  Institute for Public Sector Accounting Standards

Question 7

In businesses that handle a lot of perishable items (such as supermarkets) the actual movement of goods through inventory most closely resembles the LIFO inventory valuation technique.

Accepted Answer

A) True 
 B)False

Question 8

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:   Peak Performance's debt to owners' equity ratio (rounded to the nearest tenth of a percent) is:

Accepted Answer

A)  45.4%. 
B)  66.7%. 
C)  112.5%. 
D)  133.3%. 
A)  45.4%. 
B)  66.7%. 
C)  112.5%. 
D)  133.3%.

Question 9

An independent audit is an evaluation and unbiased opinion about the accuracy of a company's financial statements.

Accepted Answer

A) True 
 B)False

Question 10

In addition to the tasks of recording and classifying accounting information, the best accounting software programs currently available for small businesses have the ability to make financial decisions, thus eliminating the need for owners of small businesses to consult with accountants or understand accounting terminology.

Accepted Answer

A) True 
 B)False

Question 11

Posting is a step in the accounting cycle that involves transferring information from the journal into the appropriate accounts in a ledger.

Accepted Answer

A) True 
 B)False

Question 12

The ________ shows the assets, liabilities, and owners' equity of a firm, at a specific point in time.

Accepted Answer

A)  income statement 
B)  balance sheet 
C)  statement of cash flows 
D)  trial balance 
A)  income statement 
B)  balance sheet 
C)  statement of cash flows 
D)  trial balance

Question 13

An extremely high inventory turnover ratio may represent lost sales due to holding inadequate stocks of merchandise.

Accepted Answer

A) True 
 B)False

Question 14

Accounting, as the language of business, is solely concerned with providing information useful to managers of profit-seeking firms.

Accepted Answer

A) True 
 B)False

Question 15

The area of accounting that provides managers inside the organization with information they need to make decisions is called

Accepted Answer

A)  tax accounting. 
B)  managerial accounting. 
C)  informational accounting. 
D)  financial accounting. 
A)  tax accounting. 
B)  managerial accounting. 
C)  informational accounting. 
D)  financial accounting.

Question 16

Barkatorium Pet Supplies recently hired an accountant to make sense of each day's transactions, and keep better financial records for the business. The accountant showed the owner that the ledger in a computerized accounting system would automatically take entries and post them to the correct accounts in the ledger, making the bookkeeping tasks much easier.

Accepted Answer

A) True 
 B)False

Question 17

The main reason an accountant would conduct a trial balance is to

Accepted Answer

A)  determine whether account figures in the ledger are correct and balanced. 
B)  obtain an estimate of the amount of taxes the firm owes. 
C)  ensure the audit was done correctly. 
D)  verify the validity of last year's balance sheet before beginning the next accounting cycle. 
A)  determine whether account figures in the ledger are correct and balanced. 
B)  obtain an estimate of the amount of taxes the firm owes. 
C)  ensure the audit was done correctly. 
D)  verify the validity of last year's balance sheet before beginning the next accounting cycle.

Question 18

Explain the meaning of the fundamental accounting equation and its relation to the balance sheet. If it is helpful, create an example using numbers.

Accepted Answer

The fundamental accounting equation is a

Question 19

Accounting provides financial information that can be useful to owners, creditors, suppliers, employees, and competitors of an organization.

Accepted Answer

A) True 
 B)False

Question 20

A firm's efficient use of its assets in running the business is key to maintaining sufficient cash flow. Ratios that accountants utilize to measure the efficient use of assets are called ________ ratios.

Accepted Answer

A)  leverage 
B)  liquidity 
C)  activity 
D)  profitability 
A)  leverage 
B)  liquidity 
C)  activity 
D)  profitability

Exam 17: Understanding Accounting and Financial Information

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

When creating the income statement, which of the following statements is accurate?

A person's pulse rate and blood pressure are indicators of a person's health. Similarly, ________ can help assess the health of a business.

Net income before taxes is found by deducting total operating expenses from gross profit before factoring tax expense.

The balance sheet is composed of the following types of accounts:

Which of the following agencies would have the greatest impact on the methods used to record, classify, summarize, and interpret accounting information for the State of Kentucky's Department of Transportation?

In businesses that handle a lot of perishable items (such as supermarkets) the actual movement of goods through inventory most closely resembles the LIFO inventory valuation technique.

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: Peak Performance's debt to owners' equity ratio (rounded to the nearest tenth of a percent) is:

An independent audit is an evaluation and unbiased opinion about the accuracy of a company's financial statements.

Posting is a step in the accounting cycle that involves transferring information from the journal into the appropriate accounts in a ledger.

The ________ shows the assets, liabilities, and owners' equity of a firm, at a specific point in time.

An extremely high inventory turnover ratio may represent lost sales due to holding inadequate stocks of merchandise.

Accounting, as the language of business, is solely concerned with providing information useful to managers of profit-seeking firms.

The area of accounting that provides managers inside the organization with information they need to make decisions is called

The main reason an accountant would conduct a trial balance is to

Explain the meaning of the fundamental accounting equation and its relation to the balance sheet. If it is helpful, create an example using numbers.

Accounting provides financial information that can be useful to owners, creditors, suppliers, employees, and competitors of an organization.

A firm's efficient use of its assets in running the business is key to maintaining sufficient cash flow. Ratios that accountants utilize to measure the efficient use of assets are called ________ ratios.

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

Appendix: Working Within the Legal Environment

Appendix: Using Technology to Manage Information

Appendix: Managing Risk

Appendix: Managing Personal Finances

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