Question 1

Both the current ratio and the acid-test ratio are liquidity ratios.

Accepted Answer

A) True 
 B)False

Question 2

Leverage ratios indicate the extent to which ________ has been used to fund a business's operations.

Accepted Answer

A)  debt 
B)  equity 
C)  owner invested capital 
D)  profit 
A)  debt 
B)  equity 
C)  owner invested capital 
D)  profit

Question 3

Retailers attempt to sell older merchandise before more recently acquired merchandise is sold.The assumptions made by the __________ method of inventory valuation are most consistent with this approach.

Accepted Answer

A)  FIFO (first in,first out) 
B)  LIFO (last in,first out) 
C)  average costing 
D)  accelerated costing 
A)  FIFO (first in,first out) 
B)  LIFO (last in,first out) 
C)  average costing 
D)  accelerated costing

Question 4

The best way for a firm to avoid serious cash flow problems is to sustain a rapid growth in sales.

Accepted Answer

A) True 
 B)False

Question 5

The purpose of the current ratio is to evaluate the firm's ability to:

Accepted Answer

A)  Generate sales with a given level of current assets. 
B)  Utilize current assets profitably. 
C)  Pay its bills in the short run. 
D)  Effectively use borrowed funds. 
A)  Generate sales with a given level of current assets. 
B)  Utilize current assets profitably. 
C)  Pay its bills in the short run. 
D)  Effectively use borrowed funds.

Question 6

A lower than average inventory turnover ratio indicates excellent inventory management practices.

Accepted Answer

A) True 
 B)False

Question 7

As a first step in the accounting cycle,_________ involves the recording of business transactions.

Accepted Answer

A)  Marketing 
B)  Bookkeeping 
C)  Auditing 
D)  Economics 
A)  Marketing 
B)  Bookkeeping 
C)  Auditing 
D)  Economics

Question 8

The current ratio is found by dividing the firm's total assets by its total liabilities.

Accepted Answer

A) True 
 B)False

Question 9

Cash flow difficulties are unlikely for a firm that is profitable.

Accepted Answer

A) True 
 B)False

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

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

Accepted Answer

A) True 
 B)False

Question 12

Computerized accounting programs have eliminated the need to prepare a trial balance.

Accepted Answer

A) True 
 B)False

Question 13

Financial accounting is used to provide information and analysis managers within the organization can use to assist them in decision-making.

Accepted Answer

A) True 
 B)False

Question 14

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 15

Accounting transactions are very important to a firm's operations.Which of the following activities would affect the firm's account balances?

Accepted Answer

A)  Buying and selling goods and services 
B)  Interviewing prospective employees 
C)  Understanding economic reports 
D)  Forecasting consumer demand 
A)  Buying and selling goods and services 
B)  Interviewing prospective employees 
C)  Understanding economic reports 
D)  Forecasting consumer demand

Question 16

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"?

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 17

A __________ is a specialized accounting book,where transactions are categorized according to type.For example,all utility transactions are recorded in the same category.

Accepted Answer

A)  journal 
B)  trial balance 
C)  ledger 
D)  balance sheet 
A)  journal 
B)  trial balance 
C)  ledger 
D)  balance sheet

Question 18

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.This

Question 19

Preferred Pet Care,Inc.a mobile veterinary care clinic has more appointments than it ever expected to have when it opened its doors.Each week it orders more vaccines,antibiotics,and preventive care supplies from a major veterinary supplier,with the understanding that it will pay for these supplies in one month's time.Most of the company's clients are elderly and on fixed incomes,and often do not pay for services for two or more months.This is not a problem because as long as the company continues to increase its appointments,it will create profits and growth.

Accepted Answer

A) True 
 B)False

Question 20

Revenue on the income statement represents the dollar amount of what is received for goods sold,services rendered and/or from other revenue sources.

Accepted Answer

A) True 
 B)False

Exam 17: Understanding Accounting and Financial Information

Both the current ratio and the acid-test ratio are liquidity ratios.

Leverage ratios indicate the extent to which ________ has been used to fund a business's operations.

Retailers attempt to sell older merchandise before more recently acquired merchandise is sold.The assumptions made by the __________ method of inventory valuation are most consistent with this approach.

The best way for a firm to avoid serious cash flow problems is to sustain a rapid growth in sales.

The purpose of the current ratio is to evaluate the firm's ability to:

A lower than average inventory turnover ratio indicates excellent inventory management practices.

As a first step in the accounting cycle,_________ involves the recording of business transactions.

The current ratio is found by dividing the firm's total assets by its total liabilities.

Cash flow difficulties are unlikely for a firm that is profitable.

The sixth and final step in the accounting cycle involves:

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

Computerized accounting programs have eliminated the need to prepare a trial balance.

Financial accounting is used to provide information and analysis managers within the organization can use to assist them in decision-making.

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:

Accounting transactions are very important to a firm's operations.Which of the following activities would affect the firm's account balances?

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"?

A __________ is a specialized accounting book,where transactions are categorized according to type.For example,all utility transactions are recorded in the same category.

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

Revenue on the income statement represents the dollar amount of what is received for goods sold,services rendered and/or from other revenue sources.

Taking Risks and Making Profits Within the Dynamic Business Environment

Understanding How Economics 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

Adapting Organizations to Todays Markets

Production and Operations Management

Motivating Employees

Human Resource Management: Finding and Keeping the Best Employees

Dealing With Employee-Management Issues and Relationships

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 A: Using Technology to Manage Information

Appendix B: Managing Risk

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