Deck 14: Accounting and Financial Statements

Question 1

The fundamental accounting equation shows the relationship between profit, revenue, and market share.

Answer 1

False

Question 2

Each type of stock sold by a corporation represents a claim on the organization and must be represented by a separate owners' equity account.

Answer 2

True

Question 3

Ratio analysis calculations measure an organization's financial health.

Answer 3

True

Question 4

Nadine is a self-employed, state-certified accountant who files tax returns, prepares financial records, and audits corporate financial records. She is known as a ________ accountant.

A) private
B) certified management
C) certified public
D) noncertified
E) forensic

Question 5

John is an electrician who runs his own small shop. When tax season comes, he hires an accountant from one of "the Big Four" accounting firms to help him file his business's tax return. In this scenario, John has most likely hired a ________ accountant.

A) certified private
B) forensic
C) certified public
D) private
E) noncertified

Question 6

Randall wants to become a certified public accountant. To accomplish this, he must be certified by the ________ in which he plans to provide accounting services.

A) country
B) state
C) town
D) company
E) municipality

Question 7

Claire is a certified public accountant who provides accounting services to individuals and businesses. Certification gives Claire the right to

A) express, officially, an unbiased opinion regarding the accuracy of a client's financial statements.
B) publicly express a biased opinion about the accuracy of a firm's financial statements.
C) express her personal opinion in all financial matters.
D) handle every firm's reports by different rules.
E) limit the types of assets commercial banks can buy.

Question 8

The purpose of the Sarbanes-Oxley Act was to

A) require firms to be more rigorous in their accounting and reporting practices.
B) define generally accepted accounting principles.
C) eliminate accounting firms from having to hire accountants that are certified.
D) force accounting firms to combine their consulting and auditing businesses.
E) establish standards and testing procedures for becoming a CPA.

Question 9

Brad is an executive of Music Masters, a wedding and special events DJ music service. For years, he successfully hid illegal and misleading accounting practices, but eventually, he was exposed and punished with a jail sentence under the ________ Act.

A) Gramm-Leach-Bliley
B) Glass-Steagall
C) Dodd-Frank
D) Sarbanes-Oxley
E) Celler-Kefauver

Question 10

All of the following contributed to the financial crisis in 2008 EXCEPT

A) government bailouts.
B) questionable lending practices.
C) excessive risk taking.
D) investments based on subprime mortgages.
E) declining housing prices.

Question 11

Accounting scandals at ________ led to the passage of the Sarbanes-Oxley Act.

A) Fannie Mae and Freddie Mac
B) Worldcom and Enron
C) Ernst & Young and KPMG
D) Deloitte and PricewaterhouseCoopers
E) Merrill Lynch and Lehman Brothers

Question 12

Jack works for the Internal Revenue Service. His main responsibility is rooting out evidence of "cooked books" at major companies. Jack is a ________ accountant.

A) criminal
B) private
C) forensic
D) certified public
E) noncertified

Question 13

Marybeth has been an accountant for many years. Since the accounting scandals in 2000, her firm added fraud-detection services, and Marybeth decided to focus on these services. Which organization could certify Marybeth, so she can focus on detecting fraud?

A) the Internal Revenue Service
B) the Federal Bureau of Investigation
C) the Association of Certified Fraud Examiners
D) the Federal Reserve Board
E) the Association of Fighting Fraud

Question 14

Viktor is an accountant employed by a large corporation. He works for the billing and taxation department, preparing and analyzing the company's financial statements. He is most likely a(n) ________ accountant.

A) forensic
B) private
C) legal
D) internal
E) external

Question 15

Which accountant has titles such as controller, tax accountant, and internal auditor?

A) private accountants
B) certified public accountants
C) forensic accountants
D) certified fraud examiners
E) noncertified accountants

Question 16

Avantika is a private accountant who passed a rigorous examination by the Institute of Management Accountants. After passing this examination, Avantika is a

A) forensic accountant.
B) certified private accountant.
C) certified public accountant.
D) noncertified management accountant.
E) certified management accountant.

Question 17

Kaden works for a publishing company, recording its routine, day-to-day business transactions. His main responsibility is obtaining and recording the information his company needs to analyze its financial position. Based on this description, Kaden is most likely a(n)

A) accountant.
B) financial manager.
C) certified fraud examiner.
D) bookkeeper.
E) federal agent.

Question 18

Which statement best describes bookkeeping?

A) Bookkeeping involves understanding and interpreting sophisticated accounting systems to classify financial information.
B) Bookkeeping involves developing sophisticated accounting systems.
C) Bookkeeping is a process that requires extensive training.
D) Bookkeeping is a broader term than accounting.
E) Bookkeeping is much more mechanical than accounting.

Question 19

Lucia is an accountant who completed coursework beyond a basic four- or five-year college accounting degree. What does Lucia's additional training allow her to do?

A) complete the complex mechanical tasks associated with recording a company's day-to-day business transactions
B) understand, interpret, and even develop the sophisticated accounting systems necessary to classify and analyze complex financial information
C) simply to obtain and record financial information
D) become a certified management accountant
E) specialize in forensic accounting

Question 20

Pierre owns a chain of coffee shops. He hires accountants to summarize the information from his company's business transactions into a financial statement. Why would Pierre use a financial statement?

A) to pinpoint areas of employee weakness
B) to pinpoint individual employee successes
C) to determine who to promote
D) to aid in internal planning and control
E) to determine the types of customers the company has

Question 21

Management's greatest single concern is ________, which is the movement of money through an organization over a daily, weekly, monthly, or yearly basis.

A) expenses trajectory
B) income trajectory
C) accounting flow
D) the budget
E) cash flow

Question 22

Carlee's Cake Creations hired a managerial accountant to help forecast the company's expenses and income for its first year in business. This plan for how Carlee's Cake Creations plans to move from Point A to Point B over the course of the year is its

A) budget.
B) schedule.
C) agenda.
D) mission.
E) annual report.

Question 23

Terrance is a manager at a bank. He has to decide whether to lend $10,000 to Weed and Prune, a landscaping company. He should

A) approve the loan application without checking the company's credibility.
B) review the company's financial statements.
C) prepare an organizational budget.
D) report the organization's financial performance to outsiders.
E) turn down the loan application.

Question 24

Qingyi works for a large technology company as an engineer. As an employee, why should he look at his company's financial statements?

A) to ensure that his job is secure
B) to see what his co-workers are making
C) to get a sense of how competitive companies pay their employees
D) to determine if his company needs his help to succeed
E) to establish reasonable expectations for salary and other benefit requests

Question 25

Make It Your Own, a craft store, displays various types of paper, stickers, glue sticks, yarn, canvases, paints, and other craft supplies on shelves. These items are examples of the company's

A) equity.
B) liabilities.
C) assets.
D) profits.
E) features.

Question 26

Ivan got a loan from a bank to start his own house contracting business. This loan is a(n)

A) asset.
B) benefit.
C) expense.
D) transaction.
E) liability.

Question 27

When Hunter opened his fish and tackle store, he convinced his family and friends to invest in the store. They invested money and assets to help him start and grow his business. The money and assets these investors contributed to Hunter's store comprise his

A) owners' equity.
B) assets.
C) liabilities.
D) stock.
E) bonds.

Question 28

Carl is using the double-entry bookkeeping system to account for all the transactions during his first month in business as an electrician. All of the following could be specific asset categories for Carl EXCEPT

A) supplier credit.
B) cash.
C) tools.
D) inventory.
E) equipment.

Question 29

Peeta owns a bakery. She has already gathered and examined the checks, credit card receipts, sales slips, and other related evidence concerning specific transactions. She has also recorded each financial transaction in a journal and transferred that information into a ledger. What must Peeta do at the end of the accounting period?

A) She must check her journal for mistakes.
B) She must prepare a trial balance.
C) She must recheck all her source documents.
D) She must attest that she used generally accepted accounting principles.
E) She must throw away her ledger and start over.

Question 30

Which statement is TRUE regarding financial statements?

A) All financial statements follow precisely the same format.
B) There is an international set of rules that businesses must follow when preparing financial statements.
C) All industries use the same generally accepted accounting principles to develop financial statements.
D) Different types of organizations use different sets of accounting principles agreed upon by the public accounting profession.
E) There is a template businesses are required to use when preparing financial statements.

Question 31

Barat owns a large chain of Indian markets. A significant part of his job is determining the amount of income left after taxes and whether the company will retain this income or pay it out in dividends to its stockholders. The income in this scenario is ________ income.

A) gross
B) profit
C) service
D) net
E) operating

Question 32

Sheila owns a childcare business. Since this market is competitive, she has hired an advertising and sales manager to make sure potential customers know about her company. As a result, she must pay for advertising materials and her advertising and sales manager's salary. These expenses would be classified as ________ expenses.

A) selling
B) general
C) development
D) interest
E) administrative

Question 33

Lucy has borrowed money from a bank to start her new hair salon and spa. Her direct costs of borrowing this money is known as her ________ expenses.

A) interest
B) selling
C) general and administrative
D) research and development
E) depreciation

Question 34

Reliable Construction Company bought a backhoe for $100,000, which it expects to be able to use for 20 years. Rather than showing an expense of $100,000 in the first year and no expense for the crane over the next 19 years, the company can report depreciation expenses of ________ per year in each of the next 20 years because that better matches the cost of the machine to the years it is used.

A) $500
B) $100,000
C) $10,000
D) $50,000
E) $5,000

Question 35

When a piece of equipment is fully depreciated, it

A) has a zero value on the firm's balance sheet.
B) needs to be auctioned off.
C) can no longer be used.
D) is economically worthless.
E) will still appear on the firm's balance sheet with a required minimum amount.

Question 36

If a company decides to pay dividends to its shareholders, it will decrease

A) its revenue and expense accounts.
B) its checking and savings accounts.
C) its cash and capital accounts.
D) its liabilities and equity accounts.
E) its assets and stock accounts.

Question 37

Janice is preparing a balance sheet for her pet grooming company. Following long-established traditions, she lists items on her balance sheet on the basis of their

A) competitive value.
B) perceived market value.
C) present values minus accumulated depreciation.
D) present values.
E) original cost minus accumulated depreciation.

Question 38

The traditional balance sheet format placed assets on the left side with liabilities and equities on the right, but more recently a ________ format has gained wide acceptance.

A) horizontal
B) vertical
C) diagonal
D) revised
E) modern

Question 39

Camila manages a used car dealership that allows customers to buy cars for no money down and pay in installments throughout the year. Her company builds in a bad-debts adjustment that is deducted from the accounts receivable balance to present a more realistic view of the payments likely to be received in the future for these cars. The payments the company expects to receive are called

A) current assets.
B) net receivables.
C) temporary investments.
D) inventory payments.
E) gross receivables.

Question 40

What represents a commitment of organizational funds of at least one year?

A) current assets
B) fixed assets
C) temporary investments
D) inventory
E) accounts receivable

Question 41

All of the following are items that are classified as fixed assets EXCEPT

A) temporary investments.
B) equipment.
C) reputation.
D) trademarks.
E) corporate "goodwill."

Question 42

Tyler is completing a balance sheet for his home improvement company. He must include the amounts he owes to suppliers for lumber, tools, equipment, and other materials that he purchased with credit. These liabilities are called

A) accounts receivable.
B) current liabilities.
C) inventory.
D) accrued expenses.
E) accounts payable.

Question 43

Geri's Gift Store wants to compute the revenues and expenses for its most recent accounting period to determine if it is making extra cash that it can use to invest in increased long-term capacity or to pay off its debts. To determine this, Geri should calculate cash from ________ activities by combining the changes in the revenue accounts, expense accounts, current asset accounts, and current liability accounts.

A) profiteering
B) bookkeeping
C) financing
D) operating
E) marketing

Question 44

Brandon's Boot Shop is paying off its long-term debt from the bank loan Brandon secured to open the business several years ago. What does this scenario indicate?

A) Brandon's Boot Shop has a positive amount of cash from financing activities.
B) Brandon's Boot Shop has a negative amount of cash from financing activities.
C) Brandon's Boot Shop is going out of business.
D) Brandon's Boot Shop has a negative amount of cash from operating activities.
E) Brandon's Boot Shop has a positive amount of cash from investing activities.

Question 45

When Juan's Taco Hut decided to open several new locations, it spent millions of dollars on property and equipment. Which category of cash flow does this best describe?

A) cash from profiteering activities
B) cash from investing activities
C) cash from financing activities
D) cash from operating activities
E) cash from marketing activities

Question 46

How does ratio analysis relate to the income statement and balance sheet?

A) It prevents interested parties from comparing an organization with similar entities.
B) It adds complexity to the simplified information in the income statement and balance sheet.
C) It makes the information from the income statement and balance sheet more abstract.
D) It eliminates the need to reference the income statement and balance sheet.
E) It brings the income statement and balance sheet into sharper focus.

Question 47

What key performance ratio do stockholders use to determine how much money they will make on their investment?

A) inventory turnover
B) cash from investing activities
C) return on equity
D) receivables turnover
E) current ratio

Question 48

The Coffee House, a local coffee shop, has a low return on equity. What does this indicate?

A) Stockholders will receive high returns.
B) The total value of the firm's assets are even lower than the value of the owners' equity.
C) Immediate managerial attention is needed.
D) The company could go into debt paying off its stockholder dividends.
E) The company's debt load will increase.

Question 49

Steve's Shelving and Storage has a high inventory turnover ratio because Steve frequently sells and replaces his inventory over the course of a year. What might this scenario indicate?

A) great efficiency
B) low efficiency
C) lost income due to overstocking
D) low levels of productivity
E) inability to collect payments on credit sales

Question 50

Stan's Skateboards doesn't have a lot of inventory. As a result, its ________ ratio is almost exactly the same as its current ratio.

A) liquidity
B) total asset turnover
C) quick
D) receivables turnover
E) debt utilization

Question 51

________ ratios provide information about how much debt an organization is using relative to other sources of capital, such as owners' equity.

A) Debt utilization
B) Quick
C) Asset utilization
D) Receivables turnover
E) Current

Question 52

Which of the following is a debt utilization ratio?

A) quick ratio
B) current ratio
C) inventory turnover ratio
D) per share ratio
E) times interest earned ratio

Question 53

Maya is an investor who wants to compare the performance of one manufacturing company with another on an equal, or per share, basis. What is a general finding associated with this practice?

A) The less shares of stock a company issues, the less income is available for each share.
B) When two companies issue the same amount of stock, one will still generate more income than the other.
C) The more shares of stock a company issues, the more income is available for each share.
D) The amount of shares of stock a company issues has no impact on its income.
E) The more shares of stock a company issues, the less income is available for each share.

Question 54

The earnings per share ratio is important because it

A) determines a company's overall stock price.
B) can be used to compare two similar companies.
C) reveals how much debt a company carries.
D) measures how well an organization can meet its current obligations without selling its inventory.
E) indicates how fast a company can turn its assets into cash.

Question 55

Esther is the managerial accountant of True Corp. and has to prepare the financial statements for the current year. Discuss the steps that Esther should take prior to the preparation of the requisite financial statements of the company.