Question 1

Generally, a high ___________ ratio could lead investors and creditors to view the company as being very risky.

Accepted Answer

A)  debt to owners' equity 
B)  acid-test 
C)  diluted earnings per share 
D)  inventory turnover 
A)  debt to owners' equity 
B)  acid-test 
C)  diluted earnings per share 
D)  inventory turnover

Question 2

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 from its balance sheet:   Peak Performance's current ratio is:

Accepted Answer

A)  1.0. 
B)  1.5. 
C)  2.5. 
D)  3.0. 
A)  1.0. 
B)  1.5. 
C)  2.5. 
D)  3.0.

Question 3

When reviewing the balance sheet for Preferred Pet Care, Inc., a mobile small animal care business, Julian noted the following information: Company assets totaling $3.5 million, and liabilities totaling $1.3 million. On paper, the net worth (owners' equity) for this business = ____________.

Accepted Answer

A)  $2.2 million. 
B)  $4.8 million. 
C)  $3.5 million. 
D)  $0.2 million. 
A)  $2.2 million. 
B)  $4.8 million. 
C)  $3.5 million. 
D)  $0.2 million.

Question 4

Harrison Manufacturing owns land worth $600,000 and has $130,000 worth of cash in its bank account. In the asset section of the balance sheet, Harrison lists its land holdings prior to listing its cash since it is a higher value.

Accepted Answer

A) True 
 B)False

Question 5

With increased computer technology, the ability to read and understand financial statements is no longer an important skill for managers.

Accepted Answer

A) True 
 B)False

Question 6

Courtney McRae started the Row-Your-Boat paddle boat and row boat business at a nearby lake resort. She wanted to combine her accounting degree with her love of the outdoors and fishing. One of her first business purchases was a computerized accounting system. She learned in her college classes that a good software system will eliminate accounting cycle steps and the time it takes for her to interpret the results. As she put it, "It should make the decisions for me!"

Accepted Answer

A) True 
 B)False

Question 7

Hap owns and operates a small business with only four full-time employees and less than $500,000 in annual sales. He currently uses a manual accounting system and relies on a part-time bookkeeper to keep his records in order. In evaluating the possible adoption of a computerized accounting system, Hap will probably discover that:

Accepted Answer

A)  the expense of setting up a computerized accounting system would not be affordable at this time. 
B)  he would be better off hiring a full-time accountant. 
C)  he could benefit from adopting such a system, but should also consult with an accountant for advice about what's best. 
D)  a computerized system would be affordable, but that he would have little need for it unless his company became significantly larger. 
A)  the expense of setting up a computerized accounting system would not be affordable at this time. 
B)  he would be better off hiring a full-time accountant. 
C)  he could benefit from adopting such a system, but should also consult with an accountant for advice about what's best. 
D)  a computerized system would be affordable, but that he would have little need for it unless his company became significantly larger.

Question 8

Heather works in the accounting department of Colorado Manufacturing. Today she will use the firm's ledger to summarize information that was posted over the most recent time period. Her goal is to determine if the accounts are balanced as required by the double-entry method of bookkeeping. To be sure they are correct, Heather will prepare a(n):

Accepted Answer

A)  account analysis. 
B)  statement of cash flows. 
C)  balance sheet. 
D)  trial balance. 
A)  account analysis. 
B)  statement of cash flows. 
C)  balance sheet. 
D)  trial balance.

Question 9

At this point in time, Bark Three Times Pet Store's balance sheet shows $100,000 in assets and $90,000 in liabilities. The company's accounting system will show the owners' equity as $190,000.

Accepted Answer

A) True 
 B)False

Question 10

Zoey was asked by the company controller to determine if the company could borrow more money for an expansion project. When she calculated a leverage ratio, she determined that the company already had 1.5 times as much debt as equity. Do you agree with her assessment that the company should back off with borrowing more funds at this time?

Accepted Answer

A)  Yes, but if the company would increase sales, it could go ahead with borrowing more funds. 
B)  Not necessarily. She should investigate the debt to equity ratios of other firms in the same industry. 
C)  Yes, but the firm should pursue equity investment until the ratio equals 1:1. 
D)  Not necessarily. In poor economic times, it is good financial strategy for a firm to be highly leveraged. 
A)  Yes, but if the company would increase sales, it could go ahead with borrowing more funds. 
B)  Not necessarily. She should investigate the debt to equity ratios of other firms in the same industry. 
C)  Yes, but the firm should pursue equity investment until the ratio equals 1:1. 
D)  Not necessarily. In poor economic times, it is good financial strategy for a firm to be highly leveraged.

Question 11

Meg Malloy is running an income statement on her QuickBooks computer accounting program. Which of the following accounts will be used to calculate gross profit?

Accepted Answer

A)  Revenues, net sales, depreciation, and operating expenses 
B)  Revenues, general expenses 
C)  Revenues, cost of goods sold, tax expenses, net income before taxes 
D)  Revenues, cost of goods sold 
A)  Revenues, net sales, depreciation, and operating expenses 
B)  Revenues, general expenses 
C)  Revenues, cost of goods sold, tax expenses, net income before taxes 
D)  Revenues, cost of goods sold

Question 12

Which financial statement reports the company's revenues and selling costs over a period of 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

Tyler works as an accountant for a mid-sized retail store. He has just completed a trial balance that resulted in no unexpected problems. Tyler's next task is likely to be:

Accepted Answer

A)  conducting the full audit. 
B)  preparing a tax return for the company. 
C)  preparing the store's balance sheet and other major financial statements. 
D)  presenting the trial balance to the company owners. 
A)  conducting the full audit. 
B)  preparing a tax return for the company. 
C)  preparing the store's balance sheet and other major financial statements. 
D)  presenting the trial balance to the company owners.

Question 14

In the Making Ethical Decisions box titled "Would You Cook the Books?" the situation provides the student with an ethical dilemma that might present itself to an accounting professional. The story focuses on: Is it ethical to __________________________

Accepted Answer

A)  transfer long-term liabilities on the balance sheet to the balance sheet of a secondary firm? 
B)  inflate the values of assets on the Balance Sheet? 
C)  account for sales and profits at a time period, before or after the time these sales and profits actually occurred? 
D)  change one's method of accounting for inventory during the same fiscal year? 
A)  transfer long-term liabilities on the balance sheet to the balance sheet of a secondary firm? 
B)  inflate the values of assets on the Balance Sheet? 
C)  account for sales and profits at a time period, before or after the time these sales and profits actually occurred? 
D)  change one's method of accounting for inventory during the same fiscal year?

Question 15

Jose just graduated from college with a bachelor's degree in accounting. He plans to go to work for the American Cancer Society as an accountant. Jose will be a(n):

Accepted Answer

A)  private accountant. 
B)  public accountant. 
C)  forensic accountant. 
D)  independent accountant. 
A)  private accountant. 
B)  public accountant. 
C)  forensic accountant. 
D)  independent accountant.

Question 16

In large companies, certified internal auditors are usually responsible for preparing tax returns and developing tax strategies for businesses.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Accountants do the work involved in recording financial events and transactions, but the actual classifying and interpreting of this data is left to financial managers.

Accepted Answer

A) True 
 B)False

Question 19

According to the Adapting to Change box, the SEC is determined to crack down on and punish those accused of fraud. However, so many auditors and CPAs are trained in how to search for fraud that there are too many cases to prosecute.

Accepted Answer

A) True 
 B)False

Question 20

A ___________ provides a summary of cash coming into and money going out of a firm from operations activities, financing activities, and investing activities.

Accepted Answer

A)  income statement 
B)  statement of cash flows 
C)  cash budget 
D)  cash receivables and payables report 
A)  income statement 
B)  statement of cash flows 
C)  cash budget 
D)  cash receivables and payables report

Exam 17: Understanding Accounting and Financial Information

Generally, a high ___________ ratio could lead investors and creditors to view the company as being very risky.

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 from its balance sheet: Peak Performance's current ratio is:

When reviewing the balance sheet for Preferred Pet Care, Inc., a mobile small animal care business, Julian noted the following information: Company assets totaling $3.5 million, and liabilities totaling $1.3 million. On paper, the net worth (owners' equity) for this business = ____________.

Harrison Manufacturing owns land worth $600,000 and has $130,000 worth of cash in its bank account. In the asset section of the balance sheet, Harrison lists its land holdings prior to listing its cash since it is a higher value.

With increased computer technology, the ability to read and understand financial statements is no longer an important skill for managers.

At this point in time, Bark Three Times Pet Store's balance sheet shows $100,000 in assets and $90,000 in liabilities. The company's accounting system will show the owners' equity as $190,000.

Meg Malloy is running an income statement on her QuickBooks computer accounting program. Which of the following accounts will be used to calculate gross profit?

Which financial statement reports the company's revenues and selling costs over a period of time?

Tyler works as an accountant for a mid-sized retail store. He has just completed a trial balance that resulted in no unexpected problems. Tyler's next task is likely to be:

In the Making Ethical Decisions box titled "Would You Cook the Books?" the situation provides the student with an ethical dilemma that might present itself to an accounting professional. The story focuses on: Is it ethical to __________________________

Jose just graduated from college with a bachelor's degree in accounting. He plans to go to work for the American Cancer Society as an accountant. Jose will be a(n):

In large companies, certified internal auditors are usually responsible for preparing tax returns and developing tax strategies for businesses.

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

Accountants do the work involved in recording financial events and transactions, but the actual classifying and interpreting of this data is left to financial managers.

According to the Adapting to Change box, the SEC is determined to crack down on and punish those accused of fraud. However, so many auditors and CPAs are trained in how to search for fraud that there are too many cases to prosecute.

A ___________ provides a summary of cash coming into and money going out of a firm from operations activities, financing activities, and investing activities.

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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