Question 1

Liquidity refers to how fast an asset can be converted to cash.

Accepted Answer

A) True 
 B)False

Question 2

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 3

10th Generation Electronics had two transformers in its inventory,one purchased in February for $11,800 and the other acquired in September for $13,300.In December,they sold one of the transformers to Ram Enterprises for $16,400 and reported a gross profit of $3,100.10th Generation Electronics evidently uses the ________ inventory valuation method.

Accepted Answer

A) FIFO 
B) LIFO 
C) Average 
D) Flexplus 
A) FIFO 
B) LIFO 
C) Average 
D) Flexplus

Question 4

Accounting recognizes that assets,such as machinery and buildings,lose value over time.Accountants will record a portion of the cost of an asset as an expense each year through the use of:

Accepted Answer

A) Asset valuation. 
B) Asset audits. 
C) Appreciation. 
D) Depreciation. 
A) Asset valuation. 
B) Asset audits. 
C) Appreciation. 
D) Depreciation.

Question 5

Prattville Manufacturing has applied for a short-term loan with the First National Bank.The loan officers of the bank are likely to look carefully at Prattville's liquidity ratios before they decide to grant the loan.

Accepted Answer

A) True 
 B)False

Question 6

One important source of financing for most small businesses is the owners savings.If the owner contributes money to the business from his/her personal savings,it will be recorded in the Owner's Equity account on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 7

Phil O'Keefe is opening a small sports store in his town.At the advice of a friend who is a bookkeeper,he keeps the receipts of everything he purchases for the business in the bottom drawer of his desk,along with all other business expenses,such as his retail license,his rent expense,and insurance expense.You suggest that _______.

Accepted Answer

A) Phil continues with this procedure,but only until the store opens,at which time he will need an additional drawer for his sales transactions. 
B) Phil invests some time in exploring an accounting system that will make it easier to classify and summarize accounting information. 
C) Phil continues with this procedure because there is very little difference between one expense and another. 
D) Phil stops wasting valuable time saving the receipts because accountants only record sales transactions. 
A) Phil continues with this procedure,but only until the store opens,at which time he will need an additional drawer for his sales transactions. 
B) Phil invests some time in exploring an accounting system that will make it easier to classify and summarize accounting information. 
C) Phil continues with this procedure because there is very little difference between one expense and another. 
D) Phil stops wasting valuable time saving the receipts because accountants only record sales transactions.

Question 8

Bark Three Times Pet Store's owner is concerned with how his business decisions affect the "bottom line".This is another way of saying that he is concerned with the impact of his decisions on net income after taxes.

Accepted Answer

A) True 
 B)False

Question 9

Today's computerized accounting programs are:

Accepted Answer

A) Very helpful for small business owners who lack strong accounting support within their companies. 
B) Too expensive and complicated for most small businesses. 
C) A poor investment for small start-up companies due to the fact that these programs are seldom needed unless the firm is considered a mid-sized to large company. 
D) So sophisticated that they can make most financial decisions without the aid of an accountant. 
A) Very helpful for small business owners who lack strong accounting support within their companies. 
B) Too expensive and complicated for most small businesses. 
C) A poor investment for small start-up companies due to the fact that these programs are seldom needed unless the firm is considered a mid-sized to large company. 
D) So sophisticated that they can make most financial decisions without the aid of an accountant.

Question 10

According to the boxed material in the Legal Briefcase box in Chapter 17,you would be most likely to ask for the help of a forensic accountant if you:

Accepted Answer

A) Wanted to decide which accounting system to adopt for a new business. 
B) Believed that someone in your organization was employing unethical or illegal accounting methods. 
C) Faced severe financial hardship and needed to find the most effective way to cut costs quickly. 
D) Wanted to determine the best depreciation and inventory valuation methods to use to minimize the income taxes paid by your organization. 
A) Wanted to decide which accounting system to adopt for a new business. 
B) Believed that someone in your organization was employing unethical or illegal accounting methods. 
C) Faced severe financial hardship and needed to find the most effective way to cut costs quickly. 
D) Wanted to determine the best depreciation and inventory valuation methods to use to minimize the income taxes paid by your organization.

Question 11

There are five key working areas in accounting: financial accounting,managerial accounting,auditing,tax accounting,and government and not-for-profit accounting.

Accepted Answer

A) True 
 B)False

Question 12

In order to understand if the results of ratio calculations indicate a financially strong company,the results:

Accepted Answer

A) Should be compared to other firms in the same industry. 
B) Are compared to same size firms in the same geographic region of the country. 
C) Are compared to the norms established by generally accepted accounting principles. 
D) Are compared to the largest firms in the country. 
A) Should be compared to other firms in the same industry. 
B) Are compared to same size firms in the same geographic region of the country. 
C) Are compared to the norms established by generally accepted accounting principles. 
D) Are compared to the largest firms in the country.

Question 13

Scott Drilling Contractors recently issued a corporate bond on which it expects to pay interest for the next twenty years.Scott would record this as a __________ on its balance sheet.

Accepted Answer

A) declining balance asset 
B) retained earning 
C) long-term liability 
D) long-term expense 
A) declining balance asset 
B) retained earning 
C) long-term liability 
D) long-term expense

Question 14

The area of accounting that provides managers inside the organization with information they need to make decisions is called:

Accepted Answer

A) Tax accounting. 
B) Managerial accounting. 
C) Informational accounting. 
D) Financial accounting. 
A) Tax accounting. 
B) Managerial accounting. 
C) Informational accounting. 
D) Financial accounting.

Question 15

_________ refers to how quickly an asset can be converted into cash.

Accepted Answer

A) Liquidity 
B) Velocity 
C) Fundability 
D) Accessibility 
A) Liquidity 
B) Velocity 
C) Fundability 
D) Accessibility

Question 16

When valuing items in inventory for financial reporting purposes,generally accepted accounting principles (GAAP)requires firms to value the cost of goods sold by assuming that the items that have been in inventory the longest are the ones that are sold first.

Accepted Answer

A) True 
 B)False

Question 17

A(n)___________ 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

Question 18

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 19

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 20

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.

Exam 17: Understanding Accounting and Financial Information

Liquidity refers to how fast an asset can be converted to cash.

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.

Accounting recognizes that assets,such as machinery and buildings,lose value over time.Accountants will record a portion of the cost of an asset as an expense each year through the use of:

Prattville Manufacturing has applied for a short-term loan with the First National Bank.The loan officers of the bank are likely to look carefully at Prattville's liquidity ratios before they decide to grant the loan.

One important source of financing for most small businesses is the owners savings.If the owner contributes money to the business from his/her personal savings,it will be recorded in the Owner's Equity account on the balance sheet.

Bark Three Times Pet Store's owner is concerned with how his business decisions affect the "bottom line".This is another way of saying that he is concerned with the impact of his decisions on net income after taxes.

Today's computerized accounting programs are:

According to the boxed material in the Legal Briefcase box in Chapter 17,you would be most likely to ask for the help of a forensic accountant if you:

There are five key working areas in accounting: financial accounting,managerial accounting,auditing,tax accounting,and government and not-for-profit accounting.

In order to understand if the results of ratio calculations indicate a financially strong company,the results:

Scott Drilling Contractors recently issued a corporate bond on which it expects to pay interest for the next twenty years.Scott would record this as a __________ on its balance sheet.

The area of accounting that provides managers inside the organization with information they need to make decisions is called:

_________ refers to how quickly an asset can be converted into cash.

When valuing items in inventory for financial reporting purposes,generally accepted accounting principles (GAAP)requires firms to value the cost of goods sold by assuming that the items that have been in inventory the longest are the ones that are sold first.

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

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

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

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

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

Bonus A: Using Technology to Manage Information

Bonus B: Managing Risk

Bonus C: Managing Your Personal Finances

Appendix: Working Within the Legal Environment

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