Exam 17: Understanding Accounting and Financial Information

Bark Three Times Pet Store established a line of credit with its local banker and used (borrowed) $85,000 against it to purchase its first year's inventory. Since it is required to repay the money before the end of its fiscal year, the company's accountant lists this liability with the current liabilities on the balance sheet.

In an effort to maintain a competitive advantage, firms do not share accounting information with people outside of the firm.

Although managers who work for large firms must know something about accounting, people who run small businesses only need to know the basics of bookkeeping.

For the past several years, Bill Reynolds has retained accountant Chelsea Jones for help in preparing his personal income tax forms. Bill's boss recommended Chelsea because she had done a good job setting up the company's new accounting system. Bill is very satisfied with Chelsea's work and feels that the fees she charges are quite reasonable. Chelsea would be classified as a(n):

________ is the monetary value that is received for goods sold, services rendered and money received from other sources.

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

During a period of rising prices, the FIFO technique of inventory valuation will result in a lower net income figure than would the LIFO technique.

Mini-Case Minnie A. Wright-Hoff works as an accountant for Double Entry Doors, Inc. Her company sells and installs oversized garage doors needed by large vehicles. Most of Minnie's work involves helping department heads and other decision makers by measuring and reporting costs for their departments, and by identifying areas where departments are exceeding their budgets. However, as one of only three accountants employed by Double Entry Doors, Minnie is something of a "jill-of-all-trades" in terms of her accounting assignments. For example, she recently spent several hours summarizing all of the financial data in account ledgers to see if the information was correct and balanced. Her efforts revealed no problems, so she is now ready to start working on the firm's financial statements. Minnie is interested in this part of the accounting cycle because she likes to be one of the first to know the "bottom line" her company will report. She knows that she and the other accountants who work on these statements can influence the results by the choices they make about the way they report certain items. -The fact that Minnie spends most of her time measuring costs and checking to see if departments are staying within their budgets suggests that she is often involved in:

As a certified public accountant (CPA), Kay might become involved in helping clients select appropriate accounting computer software for their firm.

Peak Performance Sporting Goods Company continues to perform well in spite of an economic recession. Company executives credit this to the strong partnerships it enjoys with category killer and large discount chains. Last week Peak Performance reported basic EPS [earnings per share] = $.80/share. If the firm has 4,000,000 shares outstanding, net income after taxes for the same period = ______.

When companies owe money to creditors, suppliers, and others, these outstanding amounts are recorded on the balance sheet as __________.

The basic earnings per share ratio does not take stock options, warrants, and preferred stock into account.

The preparation of financial statements for people outside the firm (creditors, unions, suppliers, and others) is the goal of:

Lisa is preparing her homework for her accounting class. She is uncertain as to the proper handling of patents and copyrights on a firm's financial statements. Which of the following is correct?

The firm's most valuable assets are listed at the top of its balance sheet.

A _________ summarizes all the data from the account ledgers to verify that they are correct and balanced.

Many business decisions are made in hopes of improving a firm's bottom line. Which of the following financial statements will reveal a firm's bottom line?

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?

The most liquid asset is:

The balance sheet is set up to reflect the Fundamental Accounting Equation. This equation shows: