Exam 17: Understanding Accounting and Financial Information

Recent accounting scandals raised serious questions about the legitimacy of an accounting firm performing both auditing and consulting work for the same company.

Cindy is concerned because during the past four months her company has experienced difficulty in paying its bills on time.She knows if this continues,the firm will have difficulties in accomplishing its goals.Cindy is concerned with:

Careful consideration of the use of computers in accounting indicates that computers ____________________.

The LIFO method of inventory valuation bases the cost of goods sold on the cost of:

Jeremy operates his own small business,but he doesn't want to be bothered with accounting information.He tells his friends,"All I need accounting for is to prepare my income tax return for my business.I'll hire someone to do that for me." Jeremy's attitude would be disastrous if he managed a large firm,but is a reasonable view for a small business owner.

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

__________ earnings per share measures the amount of profit a firm earns per share of outstanding common stock when preferred stock,stock options,warrants and convertible debt securities are also taken into account.

CPA Experts,Inc. ,a well-known public accounting firm has enjoyed a long-standing relationship with one of its clients,Generation Technologies,Inc.Recently,at a company-wide gala,the CEO of Generation Technologies announced that CPA Experts has performed the firm's independent audits for the past ten years,and he is looking forward to exploring other services that CPA Experts has to offer,including financial consulting."After all," he exclaims,"A recent magazine article called CPA Experts the 'profitability geniuses '!" As a senior accountant for Generation Technologies,how do you advise your CEO?

Banks are likely to request a firm's balance sheet when determining whether or not to loan money to the firm.However,banks would have little interest in the firm's income statement since it covers a short period of time.

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

The job of reviewing and evaluating the records used to prepare a company's financial statements is referred to as auditing.

The sixth and final step in the accounting cycle involves:

A(n)__________ provides accounting services to individuals or firms on a fee basis.

The Sarbanes-Oxley Act prohibits accounting firms from providing certain non-auditing work (such as consulting services)to companies they audit.

Which of the following would be classified as a general expense on an income statement?

In businesses that handle a lot of perishable items (such as supermarkets)the actual movement of goods through inventory most closely resembles the LIFO inventory valuation technique.

Accounting,as the language of business,is solely concerned with providing information useful to managers of profit-seeking firms.

A(n)___________ is an evaluation and unbiased opinion of the accuracy of a firm's financial statements.

A(n)_________ is a yearly published statement of the financial condition,progress and expectations of an organization.

If the economy began experiencing a prolonged period of deflation in which the prices of most goods are falling,many firms would find that the LIFO method of inventory valuation would result in higher reported profits.