Question 1

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 2

Recent accounting scandals raised serious questions about the legitimacy of an accounting firm performing both auditing and consulting work for the same company.

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

Assets are reported on the firm's balance sheet.

Accepted Answer

A) True 
 B)False

Question 5

The acid-test ratio is found by dividing inventory by cost of goods sold.

Accepted Answer

A) True 
 B)False

Question 6

Rents, salaries, utilities and insurance are examples of operating expenses.

Accepted Answer

A) True 
 B)False

Question 7

The statement of cash flows identifies cash receipts and disbursements that result _______________.

Accepted Answer

A)  from selling goods and/or services, exclusively. 
B)  solely from a firm's investments. 
C)  from a firm's operations and investment activities, but not from financing activities. 
D)  from a firm's operations, investment, and financing activities. 
A)  from selling goods and/or services, exclusively. 
B)  solely from a firm's investments. 
C)  from a firm's operations and investment activities, but not from financing activities. 
D)  from a firm's operations, investment, and financing activities.

Question 8

Bob Stewart plans to visit his financial planner today to discuss investment strategy. As a young accountant, he knows he can afford to invest in a few riskier investments. Which of the following ratios will be an important measure of profitability for Bob?

Accepted Answer

A)  return on sales 
B)  return on equity 
C)  inventory turnover 
D)  acid test ratio 
A)  return on sales 
B)  return on equity 
C)  inventory turnover 
D)  acid test ratio

Question 9

Sales receipts, purchase orders, and payroll records are all examples of accounting transactions that would be recorded by a(n):

Accepted Answer

A)  auditor. 
B)  forensic accountant. 
C)  bookkeeper. 
D)  purchasing agent. 
A)  auditor. 
B)  forensic accountant. 
C)  bookkeeper. 
D)  purchasing agent.

Question 10

A loan officer at Southwest Bank is considering a loan application from Preferred Pet Care, Inc. He is concerned about the company's ability to make payments on the loan. The loan officer is likely to be interested in Preferred Pet Care's statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 11

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 12

Which of the following would be classified as a general expense on an income statement?

Accepted Answer

A)  Salaries paid to salespeople 
B)  Dividends paid to stockholders 
C)  Payments made for insurance 
D)  Costs associated with an advertising campaign 
A)  Salaries paid to salespeople 
B)  Dividends paid to stockholders 
C)  Payments made for insurance 
D)  Costs associated with an advertising campaign

Question 13

The value of resources the firm owns, minus the amount of money the firm owes to others = ____________.

Accepted Answer

A)  liabilities. 
B)  liquidity. 
C)  leverage. 
D)  owners' equity. 
A)  liabilities. 
B)  liquidity. 
C)  leverage. 
D)  owners' equity.

Question 14

Jill wants to start her own business, but knows little about how to set up an accounting system or interpret financial information. "I'm not worried about accounting," she tells her friends. "I'll just hire a part-time bookkeeper to handle all that type of stuff, and focus my attention on what I like-finding ways to satisfy my customers." Which of the following is the best response to Jill's comments?

Accepted Answer

A)  Fine. Just make sure the bookkeeper you hire knows how to use a database, since this type of software is the heart of any efficient accounting system. 
B)  Although you can hire someone to keep your books, you'll still need to know how to read, understand, and interpret basic accounting reports in order to make good business decisions. 
C)  Most entrepreneurs would agree with your opinion. The work done by accountants is mainly clerical in nature, so time spent by business owners on accounting tends to take them away from more important tasks. 
D)  You have a good plan. Only managers of large firms require knowledge of accounting. Owners and managers of small businesses can easily get by with just a part-time bookkeeper. 
A)  Fine. Just make sure the bookkeeper you hire knows how to use a database, since this type of software is the heart of any efficient accounting system. 
B)  Although you can hire someone to keep your books, you'll still need to know how to read, understand, and interpret basic accounting reports in order to make good business decisions. 
C)  Most entrepreneurs would agree with your opinion. The work done by accountants is mainly clerical in nature, so time spent by business owners on accounting tends to take them away from more important tasks. 
D)  You have a good plan. Only managers of large firms require knowledge of accounting. Owners and managers of small businesses can easily get by with just a part-time bookkeeper.

Question 15

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 16

The LIFO method of inventory valuation assumes the newest items in inventory are sold first.

Accepted Answer

A) True 
 B)False

Question 17

The accounting profession follows generally accepted accounting principles as defined by ___________________.

Accepted Answer

A)  GAAP. 
B)  the PCAOB (Public Company Accounting Oversight Board). 
C)  the FASB (Financial Accounting Standards Board). 
D)  the Sarbanes-Oxley Act. 
A)  GAAP. 
B)  the PCAOB (Public Company Accounting Oversight Board). 
C)  the FASB (Financial Accounting Standards Board). 
D)  the Sarbanes-Oxley Act.

Question 18

The current ratio is a good indicator of the degree to which a firm relies on borrowed funds in its operations.

Accepted Answer

A) True 
 B)False

Question 19

Identify the three key financial statements that corporations are required to prepare, and describe the type of information found on each.

Accepted Answer

Balance sheet reports the firm's financi

Question 20

A bookkeeper's first task is to record the firm's transactions in a journal.

Accepted Answer

A) True 
 B)False

Exam 17: Understanding Accounting and Financial Information

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

Recent accounting scandals raised serious questions about the legitimacy of an accounting firm performing both auditing and consulting work for the same company.

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

Assets are reported on the firm's balance sheet.

The acid-test ratio is found by dividing inventory by cost of goods sold.

Rents, salaries, utilities and insurance are examples of operating expenses.

The statement of cash flows identifies cash receipts and disbursements that result _______________.

Bob Stewart plans to visit his financial planner today to discuss investment strategy. As a young accountant, he knows he can afford to invest in a few riskier investments. Which of the following ratios will be an important measure of profitability for Bob?

Sales receipts, purchase orders, and payroll records are all examples of accounting transactions that would be recorded by a(n):

A loan officer at Southwest Bank is considering a loan application from Preferred Pet Care, Inc. He is concerned about the company's ability to make payments on the loan. The loan officer is likely to be interested in Preferred Pet Care's statement of cash flows.

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

Which of the following would be classified as a general expense on an income statement?

The value of resources the firm owns, minus the amount of money the firm owes to others = ____________.

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

The LIFO method of inventory valuation assumes the newest items in inventory are sold first.

The accounting profession follows generally accepted accounting principles as defined by ___________________.

The current ratio is a good indicator of the degree to which a firm relies on borrowed funds in its operations.

Identify the three key financial statements that corporations are required to prepare, and describe the type of information found on each.

A bookkeeper's first task is to record the firm's transactions in a journal.

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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