Question 1

The acid-test ratio emphasizes the ability to convert inventory quickly into cash.

Accepted Answer

A) True 
 B)False

Question 2

Accounting information is NOT relevant for nonprofit organizations.

Accepted Answer

A) True 
 B)False

Question 3

A basic difference between managerial accounting and financial accounting is that managerial accounting

Accepted Answer

A)  adheres to rules set by the GASB, while financial accounting uses a different group of rules set by the FASB. 
B)  involves the preparation of the balance sheet and income statement while financial accounting involves the preparation of the statement of cash flows. 
C)  handles recording and classifying information about transactions that have no direct financial impact on the firm, while financial accounting handles the recording and classifying of information about transactions that do have a financial impact. 
D)  provides information primarily intended for managers and others inside the company, while financial accounting provides information primarily intended for people outside the organization. 
A)  adheres to rules set by the GASB, while financial accounting uses a different group of rules set by the FASB. 
B)  involves the preparation of the balance sheet and income statement while financial accounting involves the preparation of the statement of cash flows. 
C)  handles recording and classifying information about transactions that have no direct financial impact on the firm, while financial accounting handles the recording and classifying of information about transactions that do have a financial impact. 
D)  provides information primarily intended for managers and others inside the company, while financial accounting provides information primarily intended for people outside the organization.

Question 4

Generally the higher the risk involved in an activity, the ________ the rate of return expected by investors.

Accepted Answer

A)  higher 
B)  lower 
C)  more stable 
D)  less frequent 
A)  higher 
B)  lower 
C)  more stable 
D)  less frequent

Question 5

The Newport Company balance sheet shows the following items: accounts payable totaling $60,000; salaries payable totaling $85,000; and notes payable totaling $120,000. These are liabilities, or money that the firm owes others.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

A firm that takes on too much debt could experience problems repaying its lenders or meeting promises made to stockholders.

Accepted Answer

A) True 
 B)False

Question 8

One of the statements prepared in the accounting cycle is the statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 9

The bottom line of the Cooper Corporation's income statement is equal to the net worth of the firm.

Accepted Answer

A) True 
 B)False

Question 10

You have just calculated the acid-test ratio for Peak Performance Sporting Goods [acid test ratio = 1.0]. As a loan officer for the local bank, you are called into your boss's office to interpret the results of this ratio. Which of the following statements best reflects an understanding of these results?

Accepted Answer

A)  A company with an acid-test ratio = 1.0 demonstrates the ability to operate very conservatively. The bank should anticipate that this firm will always be able to meet its short-term liabilities. 
B)  This company is already having problems meeting its short-term liabilities. 
C)  An acid-test ratio = 1.0 means that this firm has $1.00 in current assets for every $2.00 in current liabilities. Peak Performance is a well-run operation, as long as it can continue to sell off its inventory. 
D)  An acid-test ratio = 1.0 tells us that without adequate inventory turnover, this company may represent a higher risk. Peak Performance's acid-test ratio shows that the firm maintains $1.00 in current assets for every $1.00 in current liabilities. 
A)  A company with an acid-test ratio = 1.0 demonstrates the ability to operate very conservatively. The bank should anticipate that this firm will always be able to meet its short-term liabilities. 
B)  This company is already having problems meeting its short-term liabilities. 
C)  An acid-test ratio = 1.0 means that this firm has $1.00 in current assets for every $2.00 in current liabilities. Peak Performance is a well-run operation, as long as it can continue to sell off its inventory. 
D)  An acid-test ratio = 1.0 tells us that without adequate inventory turnover, this company may represent a higher risk. Peak Performance's acid-test ratio shows that the firm maintains $1.00 in current assets for every $1.00 in current liabilities.

Question 11

If prices of inventory are unchanged throughout the year, LIFO and FIFO inventory valuation methods will produce the same reported net income.

Accepted Answer

A) True 
 B)False

Question 12

Ivan will graduate from Great State University this year. He has accumulated $39,000 in student loans during his four years at college. An accountant would classify the loans as

Accepted Answer

A)  assets. 
B)  liabilities. 
C)  owners' equity. 
D)  intangibles. 
A)  assets. 
B)  liabilities. 
C)  owners' equity. 
D)  intangibles.

Question 13

Information contained in a firm's annual report largely represents work done by managerial accountants.

Accepted Answer

A) True 
 B)False

Question 14

PharmaONE plans to use its computers to post information from journals to the ledger instantaneously. One obvious benefit of this technology is

Accepted Answer

A)  a reduction in the number of accountants required by the firm. 
B)  less scrutiny from agencies such as the Internal Revenue Service. 
C)  to shift financial decision making from people to programmed technology. 
D)  readily available financial information. 
A)  a reduction in the number of accountants required by the firm. 
B)  less scrutiny from agencies such as the Internal Revenue Service. 
C)  to shift financial decision making from people to programmed technology. 
D)  readily available financial information.

Question 15

Coverall Insurance Corporation's internal accountants can prepare an audit for the company.

Accepted Answer

A) True 
 B)False

Question 16

For firms that sometimes have difficulty selling their inventory, the current ratio is likely to be a better measure of liquidity than the acid-test ratio.

Accepted Answer

A) True 
 B)False

Question 17

Independent audits are prepared by accountants within the organization to ensure that proper accounting procedures are followed.

Accepted Answer

A) True 
 B)False

Question 18

There are five key working areas in accounting: financial accounting, managerial accounting, auditing, tax accounting, and governmental and not-for-profit accounting.

Accepted Answer

A) True 
 B)False

Question 19

The accounting book or computer program where each day's transactions are first recorded is called a

Accepted Answer

A)  posting workbook. 
B)  general ledger. 
C)  balance sheet. 
D)  journal. 
A)  posting workbook. 
B)  general ledger. 
C)  balance sheet. 
D)  journal.

Question 20

The accounting scandals of the early 2000s led many people to question the legitimacy of

Accepted Answer

A)  ratio analysis as a means of evaluating the performance of a firm. 
B)  the five-member Public Company Accounting Oversight Board (PCAO
B)  under the Securities and Exchange Commission (SE
C)  that had been created to oversee the accounting industry. 
C)  publishing financial information about a firm on the Internet. 
D)  allowing an accounting firm to do both consulting and auditing work for the same company. 
A)  ratio analysis as a means of evaluating the performance of a firm. 
B)  the five-member Public Company Accounting Oversight Board (PCAO
B)  under the Securities and Exchange Commission (SE
C)  that had been created to oversee the accounting industry. 
C)  publishing financial information about a firm on the Internet. 
D)  allowing an accounting firm to do both consulting and auditing work for the same company.

Exam 17: Understanding Accounting and Financial Information

The acid-test ratio emphasizes the ability to convert inventory quickly into cash.

Accounting information is NOT relevant for nonprofit organizations.

A basic difference between managerial accounting and financial accounting is that managerial accounting

Generally the higher the risk involved in an activity, the ________ the rate of return expected by investors.

The Newport Company balance sheet shows the following items: accounts payable totaling $60,000; salaries payable totaling $85,000; and notes payable totaling $120,000. These are liabilities, or money that the firm owes others.

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

A firm that takes on too much debt could experience problems repaying its lenders or meeting promises made to stockholders.

One of the statements prepared in the accounting cycle is the statement of cash flows.

The bottom line of the Cooper Corporation's income statement is equal to the net worth of the firm.

If prices of inventory are unchanged throughout the year, LIFO and FIFO inventory valuation methods will produce the same reported net income.

Ivan will graduate from Great State University this year. He has accumulated $39,000 in student loans during his four years at college. An accountant would classify the loans as

Information contained in a firm's annual report largely represents work done by managerial accountants.

PharmaONE plans to use its computers to post information from journals to the ledger instantaneously. One obvious benefit of this technology is

Coverall Insurance Corporation's internal accountants can prepare an audit for the company.

For firms that sometimes have difficulty selling their inventory, the current ratio is likely to be a better measure of liquidity than the acid-test ratio.

Independent audits are prepared by accountants within the organization to ensure that proper accounting procedures are followed.

There are five key working areas in accounting: financial accounting, managerial accounting, auditing, tax accounting, and governmental and not-for-profit accounting.

The accounting book or computer program where each day's transactions are first recorded is called a

The accounting scandals of the early 2000s led many people to question the legitimacy of

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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