Question 1

If a firm has a debt to owners' equity ratio of .54 (or 54%) we can conclude that:

Accepted Answer

A)  it has relied more on debt than equity to finance its operations. 
B)  the firm is likely to have trouble paying its short-term debts when they come due. 
C)  its total liabilities are less than its owners' equity. 
D)  the firm has expenses that are exactly 54% of its gross profit. 
A)  it has relied more on debt than equity to finance its operations. 
B)  the firm is likely to have trouble paying its short-term debts when they come due. 
C)  its total liabilities are less than its owners' equity. 
D)  the firm has expenses that are exactly 54% of its gross profit. C

Question 2

Accounting is not important for nonprofit organizations since financial data is not critical to their success.

Accepted Answer

A) True 
 B)False  False

Question 3

The McGowan Group wants to know the value of its owners' equity. It will total its assets and subtract its liabilities.

Accepted Answer

A) True 
 B)False  True

Question 4

A debt to owners' equity ratio of 25% indicates that a firm has more debt than equity.

Accepted Answer

A) True 
 B)False

Question 5

The __________ is a six-step procedure that results in the preparation and analysis of the major financial statements.

Accepted Answer

A)  double-entry method 
B)  financial management process 
C)  financial performance appraisal 
D)  accounting cycle 
A)  double-entry method 
B)  financial management process 
C)  financial performance appraisal 
D)  accounting cycle

Question 6

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)  relying on the recommendations of tax accountants to find ways of reducing the taxes owed by a business organization. 
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)  relying on the recommendations of tax accountants to find ways of reducing the taxes owed by a business organization. 
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.

Question 7

The __________ sets accounting standards used in government accounting.

Accepted Answer

A)  Federal Accounting Review Board 
B)  Governmental Accounting Standards Board 
C)  Academy of Public Sector Accountants 
D)  Federal Reserve Board 
A)  Federal Accounting Review Board 
B)  Governmental Accounting Standards Board 
C)  Academy of Public Sector Accountants 
D)  Federal Reserve Board

Question 8

When an accountant "writes off" the cost of a tangible asset over its estimated lifetime, it is called depreciation.

Accepted Answer

A) True 
 B)False

Question 9

Identify and explain the differences between LIFO and FIFO inventory valuation methods. What would be the difference in gross margin using FIFO versus LIFO?

Accepted Answer

FIFO stands for first-in, first-out. Thi

Question 10

The sixth and final step in the accounting cycle involves:

Accepted Answer

A)  performing a trial balance to verify that the accounting statements are internally consistent. 
B)  auditing the books to ensure that they were prepared according to generally accepted accounting principles. 
C)  preparing the income statement. 
D)  analyzing major accounting statements to evaluate the financial condition of the firm. 
A)  performing a trial balance to verify that the accounting statements are internally consistent. 
B)  auditing the books to ensure that they were prepared according to generally accepted accounting principles. 
C)  preparing the income statement. 
D)  analyzing major accounting statements to evaluate the financial condition of the firm.

Question 11

Financial accounting and managerial accounting are similar in that they both provide information intended primarily for people inside the organization.

Accepted Answer

A) True 
 B)False

Question 12

Bookkeeping is part of the accounting cycle, but accounting goes far beyond the activities involved in bookkeeping.

Accepted Answer

A) True 
 B)False

Question 13

An income statement reports what a company owns and owes on a certain day.

Accepted Answer

A) True 
 B)False

Question 14

Net profit refers to:

Accepted Answer

A)  the result of deducting liabilities from the assets of the firm. 
B)  the result of subtracting cost of good sold from revenues. 
C)  the result of deducting depreciation expense from revenues. 
D)  the net earnings after the deduction of all expenses, including tax expense. 
A)  the result of deducting liabilities from the assets of the firm. 
B)  the result of subtracting cost of good sold from revenues. 
C)  the result of deducting depreciation expense from revenues. 
D)  the net earnings after the deduction of all expenses, including tax expense.

Question 15

The accounting cycle usually involves the work of both the bookkeeper and the accountant.

Accepted Answer

A) True 
 B)False

Question 16

Before starting his landscape business, Andrew took a marketing class at the local community college. He decided that his time would be better utilized in this class because if he could learn to sell his services well, the revenues and profits would follow. Your assessment of his plan might include which of the following:

Accepted Answer

A)  Andrew understands that marketing is the life-blood of the company, and he is right on track with his approach. 
B)  Andrew has elected to operate like a virtual company and leave various parts of the business including accounting, environmental trends scanning, and management to outsourcers. 
C)  Andrew knows that increasing revenues will always keep the business profitable and in a positive cash position. 
D)  Andrew needs to realize that the ability to understand and interpret financial statements provided by his accountant might enhance his profits. 
A)  Andrew understands that marketing is the life-blood of the company, and he is right on track with his approach. 
B)  Andrew has elected to operate like a virtual company and leave various parts of the business including accounting, environmental trends scanning, and management to outsourcers. 
C)  Andrew knows that increasing revenues will always keep the business profitable and in a positive cash position. 
D)  Andrew needs to realize that the ability to understand and interpret financial statements provided by his accountant might enhance his profits.

Question 17

A tax accountant is responsible for preparing tax returns and developing tax strategies.

Accepted Answer

A) True 
 B)False

Question 18

Discuss the role of an independent auditor. Provide information about the types of accounting activities they perform and the recent laws that have emerged to help guide them as they do their job.

Accepted Answer

Auditors can be either private or public

Question 19

Accounting involves both the recording and the interpreting of financial events.

Accepted Answer

A) True 
 B)False

Question 20

Brand names such as Coca-Cola and McDonald's are examples of intangible assets.

Accepted Answer

A) True 
 B)False

Exam 17: Understanding Accounting and Financial Information

If a firm has a debt to owners' equity ratio of .54 (or 54%) we can conclude that:

Accounting is not important for nonprofit organizations since financial data is not critical to their success.

The McGowan Group wants to know the value of its owners' equity. It will total its assets and subtract its liabilities.

A debt to owners' equity ratio of 25% indicates that a firm has more debt than equity.

The __________ is a six-step procedure that results in the preparation and analysis of the major financial statements.

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

The __________ sets accounting standards used in government accounting.

When an accountant "writes off" the cost of a tangible asset over its estimated lifetime, it is called depreciation.

Identify and explain the differences between LIFO and FIFO inventory valuation methods. What would be the difference in gross margin using FIFO versus LIFO?

The sixth and final step in the accounting cycle involves:

Financial accounting and managerial accounting are similar in that they both provide information intended primarily for people inside the organization.

Bookkeeping is part of the accounting cycle, but accounting goes far beyond the activities involved in bookkeeping.

An income statement reports what a company owns and owes on a certain day.

Net profit refers to:

The accounting cycle usually involves the work of both the bookkeeper and the accountant.

A tax accountant is responsible for preparing tax returns and developing tax strategies.

Discuss the role of an independent auditor. Provide information about the types of accounting activities they perform and the recent laws that have emerged to help guide them as they do their job.

Accounting involves both the recording and the interpreting of financial events.

Brand names such as Coca-Cola and McDonald's are examples of intangible assets.

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 Union and 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

Managing the Marketing Mix: Product, Price, Place and Promotion

Extension: Working Within the Legal Environment

Extension: Using Technology to Manage Information

Extension: Managing Risk

Extension: Managing Personal Finances

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