Deck 15: Understanding Accounting and Financial Statements

Question 1

Elsa owns a business and is reviewing her company's current financial statements.As a user of accounting information,Elsa is most interested in using this information to

A)evaluate credit risk.
B)approve new issues of stocks and bonds.
C)plan and control activities.
D)evaluate tax liabilities.

Answer 1

C

Question 2

Professionals who are responsible for gathering,recording,reporting,and interpreting the financial information of an organization are known as

A)statisticians.
B)accountants.
C)IRS agents.
D)IRS agents' managers.

Answer 2

B

Question 3

Lambert manages the sales force for his company.He is engaged in the _____ activity.

A)operating
B)accounting
C)financing
D)investing

Answer 3

A

Question 4

A ______ provides accounting services to individuals or companies for a fee.

A)management consultant
B)public accountant
C)management accountant
D)government accountant

Question 5

Which activities provide the necessary funds to start a business and to expand it after it begins operations?

A)Selling
B)Financing
C)Operating
D)Investing

Question 6

Benicio is a loan officer for a bank and is reviewing the financial statements of a prospective borrower.As a user of accounting information,Benicio is most interested in using this information

A)to plan and control daily operations.
B)in contract negotiations.
C)to make an investment decision and estimate its future returns.
D)to evaluate financial soundness of potential clients.

Question 7

An accountant employed by a business other than a public accounting firm is called a ______,who typically collects and records financial transactions and prepares financial statements used by the company's managers in decision making.

A)management consultant
B)public accountant
C)management accountant
D)government accountant

Question 8

All of the following are assets EXCEPT

A)inventory.
B)cash.
C)patents.
D)bank loans.

Question 9

Angelina works for a mid-sized manufacturing company.Her responsibility is to examine the company's financial practices to ensure that records include accurate data and that the company's operations are in compliance with federal,state,and local laws and regulations.Angelina is a(n)

A)government accountant.
B)cost accountant.
C)tax accountant.
D)internal auditor.

Question 10

Salman performs professional services similar to those of a management accountant while working for the city of Portland.Salman can best be described as a

A)public accountant.
B)cost accountant.
C)tax accountant.
D)government accountant.

Question 11

Which of these activities focus on providing valuable assets to a business?

A)Marketing
B)Investing
C)Selling
D)Operating

Question 12

Which of these describes the process of measuring,interpreting,and communicating financial information to enable people inside and outside the company to make informed decisions?

A)Selling
B)Accounting
C)Operating
D)Investing

Question 13

The natural progression of a business begins with

A)operating.
B)investing.
C)financing.
D)selling.

Question 14

Fernando is not an employee of the Edith Corporation,but he was hired as a management consultant to provide unbiased advice about Edith Corporation's financial condition.Fernando is a(n)

A)public accountant.
B)government accountant.
C)internal auditor.
D)management accountant.

Question 15

Public accountants typically perform all of the following tasks for a business client EXCEPT

A)tax planning.
B)reviewing a firm's financial statements.
C)developing the firm's marketing strategy.
D)management consulting.

Question 16

Carmen works as a tax accountant at a mid-sized manufacturing company.Carmen would be considered a

A)management consultant.
B)public accountant.
C)management accountant.
D)government accountant.

Question 17

Astrid works for a travel agency.Her job involves preparing financial reports and interpreting those reports to provide information for decision making.Which title is appropriate for Astrid's job?

A)Market researcher
B)Systems analyst
C)Investor
D)Accountant

Question 18

Ramon has been hired to collect and record financial transactions and prepare financial statements for a Christian organization affiliated to a church,which makes him a

A)not-for-profit accountant.
B)government accountant.
C)public accountant.
D)management accountant.

Question 19

_______ at the federal level manage public funds,investigate white-collar crime,perform audits for government agencies,and stay up-to-date on emerging accounting and regulatory issues.

A)Management consultant
B)Public accountant
C)Management accountant
D)Government accountant

Question 20

_____ activities focus on selling goods and services.

A)Marketing
B)Operating
C)Financing
D)Investing

Question 21

Whereas the ______ reflects a company's financial situation at a specific point in time,the ____ indicates the flow of resources that reveals the performance of the organization over a specific time period.

A)statement of changes in retained earnings; balance sheet
B)income statement; balance sheet
C)statement of cash flows; income statement
D)balance sheet; income statement

Question 22

A(n)_____ is a financial statement that is directly based on the accounting equation.

A)balance sheet
B)income statement
C)statement of cash flows
D)statement of changes in retained earnings

Question 23

In the United States,______ is primarily responsible for evaluating,setting,or modifying GAAP?

A)SOX
B)IASB
C)IFRS
D)FASB

Question 24

All of the following are liabilities EXCEPT

A)accumulated profits not paid in dividends.
B)accounts payable.
C)bank loans.
D)wages payable.

Question 25

To provide reliable,consistent,and unbiased information to decision makers,accountants follow guidelines,or standards,known as

A)the accounting process.
B)the accounting system.
C)generally accepted accounting principles (GAAP).
D)Financial Accounting Standards Board (FASB).

Question 26

A(n)_______ is anything of value owned or leased by a business.

A)owners' equity
B)asset
C)liability
D)accounts payable

Question 27

Altoona Products buys a $500,000 machine by taking out a bank loan.The company's assets will _____ by $500,000 while its liabilities will _?____?? by $500,000.

A)rise; rise
B)fall; fall
C)rise; fall
D)fall; rise

Question 28

Which principles encompass the conventions,rules,and procedures for determining acceptable accounting and financial reporting practices at a particular time?

A)SOX
B)IASB
C)GAAP
D)FASB

Question 29

A(n)________ of a business is anything owed to creditors-that is,the claims of a company's creditors.

A)owners' equity
B)asset
C)liability
D)accumulated profits not paid in dividends

Question 30

Cumberland Fabrication has $80 million in assets and $50 million in owners' equity.How much does the firm have in liabilities?

A)$80 million
B)$50 million
C)$30 million
D)$20 million

Question 31

Leonardo,chief financial officer for a company,wants to take a look at the summary of expenses,revenues,and profits of the firm for the most recent quarter.He can best find this information by consulting the

A)balance sheet.
B)cash flow statement.
C)statement of owners' equity.
D)income statement.

Question 32

Which of the following represents the accounting equation?

A)Assets + Liabilities = Owners' Equity
B)Assets = Liabilities + Owners' Equity
C)Liabilities = Assets + Owners' Equity
D)Owners' Equity - Liabilities = Assets

Question 33

The _____ was created by the Sarbanes-Oxley Act of 2002.

A)Securities & Exchange Commission
B)Public Accounting Oversight Board
C)GAAP
D)FASB

Question 34

Which of the following financial statements shows a company's financial position on a particular date?

A)Statement of changes in retained earnings
B)Income statement
C)Statement of cash flows
D)Balance sheet

Question 35

Which of the following financial statements is also called a profit and loss statement?

A)Statement of changes in retained earnings
B)Income statement
C)Statement of cash flows
D)Balance sheet

Question 36

________ is the owner's initial investment in the business plus profits that were not paid out to owners over time in the form of cash dividends.

A)Owners' equity
B)Asset
C)Liability
D)Cash

Question 37

Meryl is a corporate certified public accountant (CPA)working on a new budget.When she lists the company's liabilities,which of the following will she include?

A)Computer software
B)Owners' equity
C)Marketable securities
D)Employees' wages and salaries

Question 38

All of the following are tangible assets EXCEPT

A)cash.
B)patents.
C)building.
D)inventory.

Question 39

The procedure used by accountants to convert data about individual transactions to financial statements is called

A)the cash flow method.
B)the statement of owners' equity.
C)the accounting cycle.
D)the balance sheet.

Question 40

Who appoints the members of the Public Company Accounting Oversight Board?

A)FASB
B)American Association of CPAs
C)Federal Trade Commission
D)Securities and Exchange Commission

Question 41

If a firm has a current ratio of 2.5,it means that for every $2.50 in _____ it has $1.00 in

A)current assets; current liabilities
B)total assets; total liabilities
C)current assets; total liabilities
D)total assets; current liabilities

Question 42

Using the following balance sheet information,find the firm's acid-test ratio.

A)0)60
B)1)00
C)1)40
D)2)00

Question 43

A firm has total assets of $50 million and owner's equity of $40 million.What is the firm's debt ratio?

A)70%
B)50%
C)30%
D)20%

Question 44

Bianca wishes to create a financial blueprint for a future period that reflects such items as expected sales revenues,operating expenses,and cash receipts and disbursements.Bianca wants to create a(n)

A)sales forecast.
B)statement of cash flows.
C)income statement.
D)budget.

Question 45

If Simone Enterprises has a debt ratio of 40%,it means that for every $1 in _____,the firm has 40 cents in _____.

A)owners' equity; liabilities
B)assets; liabilities
C)owners' equity; assets
D)assets; owners' equity

Question 46

Expenses that have been incurred (such as wages)but have yet to be paid are reported on the balance sheet as

A)accruals.
B)accounts receivable.
C)accounts payable.
D)notes payable.

Question 47

All of the following are profitability ratios EXCEPT

A)inventory turnover.
B)return on equity.
C)net profit margin.
D)gross profit margin.

Question 48

An asset turnover ratio of 2.5 means that for every $1 in assets,the firm generates _____ in sales.

A)$0.50
B)$2.00
C)$2.50
D)$3.00

Question 49

Last year,ABC Tools had a current ratio of 2.0 and an acid-test ratio of 1.0.This year the firm's current ratio is 2.5 and its acid-test ratio is 1.5.ABC's _____ has _____.

A)profitability; improved
B)profitability; deteriorated
C)liquidity; improved
D)liquidity; deteriorated

Question 50

If a company has an acid test ratio of 1.00,$5 million in inventory,and $10 million in current liabilities,what are its total current assets?

A)$5 million
B)$10 million
C)$15 million
D)$20 million

Question 51

Which of the following is a noncash expense?

A)Depreciation
B)Operating costs
C)Income taxes
D)Cost of goods sold

Question 52

Which of the following do companies prepare on a monthly basis?

A)Shareholders' equity
B)Credit statement
C)Cash budget
D)Statement of cash flows

Question 53

Ricardo wants to assess his firm's ability to meet its short-term obligations.Which of the following ratios are the most relevant?

A)Activity ratios
B)Debt ratios
C)Liquidity ratios
D)Profitability ratios

Question 54

Which of the following is true of Mint.com?

A)It is an online tool for managing personal finances.
B)It tracks a company's cash inflows and outflows.
C)It is a complex and sophisticated budgeting system.
D)It promotes worldwide consistency in financial reporting practices.

Question 55

Excel Corporation sells $1,000 worth of goods on July 25 on credit.The customer sends the company a check on August 15.The customer receives the goods on September 1.Assuming the company uses accrual accounting,the sale will be recorded in

A)August.
B)July.
C)September.
D)October.

Question 56

Which of the following statements is correct?

A)Budgets are limited to projecting cash inflows and outflows.
B)Budgets serve as a planning and control tool.
C)GAAP standards are used in budget development.
D)Budgets serve as a standard by which estimated performance is compared.

Question 57

Which of the following current assets is NOT included when calculating the acid-test ratio?

A)Inventory
B)Marketable securities
C)Cash
D)Accounts receivable

Question 58

Amelia asked her accountant to prepare a summary of the company's "bottom line." What specific information is Amelia interested in?

A)Comparison of assets and liabilities
B)The company's financial position for that week
C)Net income after taxes
D)Statement of owners' equity

Question 59

Which ratios are designed to evaluate a firm's ability to generate revenues in excess of operating costs and other expenses?

A)Activity
B)Liquidity
C)Profitability
D)Debt

Question 60

Nicole is the Executive Director of a local food bank and is assessing the financial situation of her not-for-profit organization.Nicole uses a(n)_____ to determine whether revenues from contributions and other sources will cover operating costs.

A)statement of cash flows
B)income statement
C)balance sheet
D)accrual accounting

Question 61

The natural progression of a business begins with operating the business.

Question 62

Jones Corp)an apparel company,has total assets worth $8,500.The owners' initial investment in Jones Corp.stood at $4,000,and profits that were not paid out to owners over time was at $2,000.Calculate the total liabilities.

A)$10,500
B)$6,500
C)$4,500
D)$2,500

Question 63

The CEO of an online retail store plans to share all financial information with the company's employees.The CEO believes that in doing so,employees will understand how they contribute to the success of the company.The CEO,in this scenario,is implementing

A)knowledge management.
B)double-entry bookkeeping.
C)open book management.
D)on-demand computing.

Question 64

Even today,most companies refuse to share any financial information with employees.

Question 65

Which of the following was established in 1973 to promote worldwide consistency in financial reporting practices?

A)FASB
B)IASC
C)The World Bank
D)GAAP

Question 66

Yashmi is involved in obtaining new funds to run and expand the business.She is engaged in an investing activity.

Question 67

Lorna is an accountant who works for a firm providing auditing services to other businesses.Lorna is a public accountant.

Question 68

Investing activities focus on selling goods and services,but they also consider cost control as an important element of sound financial management.

Question 69

Rodrigues Inc.a construction company,recorded a gross profit of $12,000.Its operating expenses stood at $2,000.The amount of depreciation was calculated to be $3,000.Rodrigues paid out $2,500 in income taxes.Which of the following figures captures Rodrigues' bottom line?

A)$10,000
B)$4,500
C)$3,500
D)$7,000

Question 70

What happens when the value of dollar drops?

A)The earnings of a U.S.company with national operations increase.
B)The earnings of a U.S.company with national operations decrease.
C)The earnings of a U.S.company with international operations increase.
D)The earnings of a U.S.company with international operations decrease.

Question 71

Accountants play fundamental roles in not only business but also other aspects of society.

Question 72

The language of business is accounting.

Question 73

Which of the following is an accounting software?

A)Linux
B)Windows Vista
C)Microsoft Azure
D)NetSuite

Question 74

Marks Inc.an online retail store,recorded an inventory of $3,000 as of December 31,2012.Its inventory stood at $3,500 on December 31,2013.The cost of goods sold for the corresponding year was $15,000.Which of the following indicates the inventory turnover ratio of Marks Inc.?

A)5
B)4)28
C)4)61
D)5)22

Question 75

Accounting information can be as important to those outside the organization as it is to those inside the organization.

Question 76

The assets seen in a balance sheet are in descending order of

A)liabilities.
B)leverage ratio.
C)liquidity.
D)acid-test ratio.

Question 77

Financing activities focus on providing valuable assets required to run a business.

Question 78

Accountants play a role in all three business activities: financing,investing,and operating.

Question 79

Daily business decisions are generally unaffected by accounting information; long-term decisions,however,are affected by accounting information and the interpretation of financial reports.

Question 80

Public accountants are typically employees of the firm for which they are providing services.