Exam 17: Understanding Accounting and Financial Information

The sole purpose of accounting is to help managers evaluate the financial condition of the firm so that they may make better pricing decisions.

The top managers of Highbrow Bookstores want to indicate to the firm's shareholders how effectively they have managed the company.Perhaps the most meaningful way to do this would be by reporting strong:

As Hector was packing to return to State University after his summer vacation,he realized that he owned many valuable things such as a laptop computer,a stereo system,and a DVD player.An accountant would list all of these as Hector's:

The financial ratios that measure a firm's ability to pay its short-term debts are called:

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

General expenses include office salaries,rent,and insurance.

The __________ is a six-step procedure that results in the preparation and analysis of the major financial statements.

Net Profit refers to:

Although accounting has several specific uses,the overall purpose of accounting can be summarized as:

Managers who are concerned about keeping costs under control should be very interested in the information and advice provided by their company's managerial accountants.

Marshall McBride inherited $10,000 from his Great Aunt Martha.He invested $5,000 in a new,risky start-up venture,10^th Generation,Inc. ,and the other $5,000 in Major Chemicals,Inc,a well-known chemical company that's been around for years.Today,his financial planner called to inform him that the Return on Equity on 10^th Generation = 6.28%;and,Return on Equity on Major Chemicals = 10.50%.Which of the following facts is important information for Marshall McBride?

Company resources that are purchased with the intention that they will convert to cash within one year are:

The steps in the accounting cycle do not need to be followed in the order stated.Monthly financial statements can be prepared with a good amount of accuracy,prior to posting in the ledger or preparing the trail balance.

Many businesses now use computers and accounting software to simplify the mechanical aspects involved in accounting.

When creating the income statement,which of the following statements is accurate?

When an accountant "writes off" the cost of a tangible asset over its estimated lifetime,it is called depreciation.

The ______________ shows how the capital is structured in the business,including the value of assets and the amount the firm owes at a specific point in time.

Preferred Pet Care,Inc.successfully took out a loan for $130,000 from Southwest Bank.It used $80,000 of this loan to pay-off an existing loan that had a higher interest rate,and purchased X-ray equipment with the remaining funds.These events were noted as financing and investing activities on its balance sheet.

Patents and copyrights are examples of intangible assets.

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. -Double Entry Door's suppliers maintained very stable prices for many years,but Minnie has noticed that the cost of doors has been rising steadily for the past few years.She is concerned that,given the company's current accounting methods of basing its cost on the most recent doors purchased,this will result in a much lower net income than in the past.The most likely reason for her concern is that Double Entry has apparently been using: