Question 1

Activity ratios measure the effectiveness of the firm's management in using its various resources to achieve profits.

Accepted Answer

A) True 
 B)False

Question 2

What is the difference between a profit [net income after taxes] on an income statement and the cash balance reflected at the bottom of the statement of cash flows?

Accepted Answer

The income statement will show:
- net re

Question 3

Bark Three Times Pet Store's accountant has recorded the following: Total current assets = $60,000,including Cash = $24,000;Accounts Receivable = $20,000;and,Inventory = $16,000.Total assets = $230,000;Total current liabilities = $48,000;and,Total current and long-term liabilities = $98,000.The store's current ratio = 1.25.The store's acid-test ratio = .92.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is an area of importance in accounting?

Accepted Answer

A) Employee scheduling 
B) Summarizing information in order to create reports and financial statements 
C) Analyzing strategic direction 
D) Setting prices for goods and services sold by the organization 
A) Employee scheduling 
B) Summarizing information in order to create reports and financial statements 
C) Analyzing strategic direction 
D) Setting prices for goods and services sold by the organization

Question 5

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 6

At present,accounting software packages have proven to be too complex and expensive to be useful for owners of small businesses.

Accepted Answer

A) True 
 B)False

Question 7

The income statement computes net income by subtracting liabilities from assets.

Accepted Answer

A) True 
 B)False

Question 8

You have just calculated the acid-test ratio for Peak Performance Sporting Goods [acid test ratio = 1.0].As a loan officer for the local bank,you are called into your boss's office to interpret the results of this ratio.Which of the following statements best reflects an understanding of these results?

Accepted Answer

A) A company with an acid-test ratio = 1.0 demonstrates the ability to operate very conservatively.The bank should anticipate that this firm will always be able to meet its short-term liabilities. 
B) This company is already having problems meeting its short-term liabilities. 
C) An acid-test ratio = 1.0 means that this firm has $1.00 in current assets for every $2.00 in current liabilities.Peak Performance is a well-run operation,as long as it can continue to sell-off its inventory. 
D) An acid test ratio = 1.0 tells us that without adequate inventory turnover,this company may represent a higher risk.Peak Performance's acid test ratio shows that the firm maintains $1.00 in current assets for every $1.00 in current liabilities. 
A) A company with an acid-test ratio = 1.0 demonstrates the ability to operate very conservatively.The bank should anticipate that this firm will always be able to meet its short-term liabilities. 
B) This company is already having problems meeting its short-term liabilities. 
C) An acid-test ratio = 1.0 means that this firm has $1.00 in current assets for every $2.00 in current liabilities.Peak Performance is a well-run operation,as long as it can continue to sell-off its inventory. 
D) An acid test ratio = 1.0 tells us that without adequate inventory turnover,this company may represent a higher risk.Peak Performance's acid test ratio shows that the firm maintains $1.00 in current assets for every $1.00 in current liabilities.

Question 9

________ measures the speed of inventory moving through the firm and its conversion into sales.

Accepted Answer

A) Asset turnover ratio 
B) Inventory turnover ratio 
C) Sales turnover ratio 
D) Cost of goods sold turnover ratio 
A) Asset turnover ratio 
B) Inventory turnover ratio 
C) Sales turnover ratio 
D) Cost of goods sold turnover ratio

Question 10

The net income of a firm can change significantly depending upon the specific accounting procedures that are used for depreciation and inventory valuation.

Accepted Answer

A) True 
 B)False

Question 11

On December 31,2010,Virginia Laboratories had assets of $235,000 and owners' equity of $84,000.We can conclude that on December 31,2010,Virginia Laboratories balance sheet showed:

Accepted Answer

A) Total liabilities of $151,000. 
B) Suffered a net loss of $151,000. 
C) Experienced a cash inflow of $319,000. 
D) Paid a dividend of $3.00 per share. 
A) Total liabilities of $151,000. 
B) Suffered a net loss of $151,000. 
C) Experienced a cash inflow of $319,000. 
D) Paid a dividend of $3.00 per share.

Question 12

Miko is preparing her homework for her accounting class.She is uncertain as to the proper handling of patents and copyrights on a firm's financial statements.Which of the following is correct?

Accepted Answer

A) Patents and copyrights are included with the firm's intangible assets on the balance sheet. 
B) Patents and copyrights are included with the firm's long-term liabilities on the balance sheet. 
C) Patents and copyrights are included with the firm's cost of goods sold on the income statement. 
D) Patents and copyrights are included with the firm's fixed assets on the balance sheet. 
A) Patents and copyrights are included with the firm's intangible assets on the balance sheet. 
B) Patents and copyrights are included with the firm's long-term liabilities on the balance sheet. 
C) Patents and copyrights are included with the firm's cost of goods sold on the income statement. 
D) Patents and copyrights are included with the firm's fixed assets on the balance sheet.

Question 13

Cash flow statements identify three sources of cash receipts and disbursements: Assets,liabilities and owners' equity.

Accepted Answer

A) True 
 B)False

Question 14

The inventory turnover ratio for all firms should be greater than 2 times.

Accepted Answer

A) True 
 B)False

Question 15

The income statement reports the difference between a firm's assets and its liabilities as of a certain date.

Accepted Answer

A) True 
 B)False

Question 16

Earnings per share,return on sales,and return on equity are examples of:

Accepted Answer

A) leverage ratios. 
B) liquidity ratios. 
C) equity ratios. 
D) profitability ratios. 
A) leverage ratios. 
B) liquidity ratios. 
C) equity ratios. 
D) profitability ratios.

Question 17

A firm's annual report is a yearly statement of the financial condition,progress,and expectations of the organization during one year.

Accepted Answer

A) True 
 B)False

Question 18

An important difference between accounting and other business functions,such as marketing and management,is that:

Accepted Answer

A) Accounting functions must be performed by an "outsider" (rather than by an employee of the business)in order to avoid conflicts of interest. 
B) Accounting offers us insight into whether the business is financially sound. 
C) Accounting involves mainly clerical activities and thus requires very little analysis. 
D) Accounting deals exclusively with numbers. 
A) Accounting functions must be performed by an "outsider" (rather than by an employee of the business)in order to avoid conflicts of interest. 
B) Accounting offers us insight into whether the business is financially sound. 
C) Accounting involves mainly clerical activities and thus requires very little analysis. 
D) Accounting deals exclusively with numbers.

Question 19

A business manager who keeps his/her customers satisfied can be successful without having a great deal of knowledge about accounting practices.

Accepted Answer

A) True 
 B)False

Question 20

Julio borrowed money from a close friend to obtain a liquor license for his pub,and gave him a written promise to repay the amount within six months.Julio should list this business debt as an operating expense on his pub's balance sheet.

Accepted Answer

A) True 
 B)False

Exam 17: Understanding Accounting and Financial Information

Activity ratios measure the effectiveness of the firm's management in using its various resources to achieve profits.

What is the difference between a profit [net income after taxes] on an income statement and the cash balance reflected at the bottom of the statement of cash flows?

Which of the following is an area of importance in accounting?

At present,accounting software packages have proven to be too complex and expensive to be useful for owners of small businesses.

The income statement computes net income by subtracting liabilities from assets.

________ measures the speed of inventory moving through the firm and its conversion into sales.

The net income of a firm can change significantly depending upon the specific accounting procedures that are used for depreciation and inventory valuation.

On December 31,2010,Virginia Laboratories had assets of $235,000 and owners' equity of $84,000.We can conclude that on December 31,2010,Virginia Laboratories balance sheet showed:

Miko is preparing her homework for her accounting class.She is uncertain as to the proper handling of patents and copyrights on a firm's financial statements.Which of the following is correct?

Cash flow statements identify three sources of cash receipts and disbursements: Assets,liabilities and owners' equity.

The inventory turnover ratio for all firms should be greater than 2 times.

The income statement reports the difference between a firm's assets and its liabilities as of a certain date.

Earnings per share,return on sales,and return on equity are examples of:

A firm's annual report is a yearly statement of the financial condition,progress,and expectations of the organization during one year.

An important difference between accounting and other business functions,such as marketing and management,is that:

A business manager who keeps his/her customers satisfied can be successful without having a great deal of knowledge about accounting practices.

Julio borrowed money from a close friend to obtain a liquor license for his pub,and gave him a written promise to repay the amount within six months.Julio should list this business debt as an operating expense on his pub's balance sheet.

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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