Question 1

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.
-Minnie knows that Double Entry has a lot of short-term debt coming due in the next year,and wants to make sure that the company will have the ability to make the required payments.Given a troubling downturn in construction activity over the past couple of months,she is not confident that Double Entry can count on selling its current inventory of doors before the debt comes due.Which of the following ratios would be most relevant to Minnie?

Accepted Answer

A) current ratio 
B) debt to equity ratio 
C) return on sales 
D) acid-test ratio

Question 2

In order to calculate the current ratio for your firm,you divide the total value of current assets by:

Accepted Answer

A) Earnings per share. 
B) The total value of current liabilities. 
C) The total owners' equity. 
D) The total cost of goods solD.The current ratio is calculated by dividing current assets by current liabilities.[Current Ratio = Current Assets/Current Liabilities]

Question 3

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.
-The fact that Minnie wants to determine the "bottom line" for Double Entry Doors means that she is particularly interested in preparing her firm's:

Accepted Answer

A) Income statement. 
B) Cash flow statement. 
C) Master budget. 
D) Capital budget.

Question 4

A firm's financial statements represent a health report regarding the condition of the firm.

Accepted Answer

A) True 
 B)False

Question 5

When companies owe money to creditors,suppliers,and others,these outstanding amounts are recorded on the balance sheet as _________.

Accepted Answer

A) contra-assets 
B) liabilities 
C) owners' equity 
D) expenses

Question 6

The Financial Accounting Standards Board only sets standards for accountants in the private sector;however,government accountants have no universally accepted procedures that they must follow.

Accepted Answer

A) True 
 B)False

Question 7

Bark Three Times Pet Store established a line of credit with its local banker and used (borrowed)$85,000 against it to purchase its first year's inventory.Since it is required to repay the money before the end of its fiscal year,the company's accountant lists this liability with the current liabilities on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 8

The debt to owners' equity ratio is a common type of liquidity ratio.

Accepted Answer

A) True 
 B)False

Question 9

The Barkley Company has recorded its unpaid bill for supplies under a current liabilities account on the balance sheet.This payment will be due to the supplier in less than a year.

Accepted Answer

A) True 
 B)False

Question 10

Bookkeeping is part of the accounting cycle,but accounting goes far beyond the activities involved in bookkeeping.

Accepted Answer

A) True 
 B)False

Question 11

The _____ account on the Balance Sheet shows profits that the firm has reinvested in the company.

Accepted Answer

A) retained earnings 
B) stockholder's equity 
C) intangible assets 
D) notes payable

Question 12

An accountant who has a bachelor's degree,two years of experience in internal auditing and who has passed an exam by the Institute of Internal Auditors can become recognized as a certified internal auditor.

Accepted Answer

A) True 
 B)False

Question 13

_______ refers to the value that stockholders or owners have in a company.

Accepted Answer

A) Assets 
B) Liabilities 
C) Owners' equity 
D) Contra receivables

Question 14

The Internal Revenue Service is responsible for establishing accounting standards used by accountants working in government accounting.

Accepted Answer

A) True 
 B)False

Question 15

Liquidity refers to how quickly liabilities must be paid.

Accepted Answer

A) True 
 B)False

Question 16

When Bark Three Times Pet Store sells inventory,the value of the cost of goods sold reported on the income statement will depend on which inventory valuation method it uses.

Accepted Answer

A) True 
 B)False

Question 17

The most liquid asset is:

Accepted Answer

A) Sales. 
B) Cash. 
C) Accounts payable. 
D) Owners' equity.

Question 18

A lower than average inventory turnover ratio indicates excellent inventory management practices.

Accepted Answer

A) True 
 B)False

Question 19

There are two major financial statements prepared at the completion of the accounting cycle: the journal and the ledger.

Accepted Answer

A) True 
 B)False

Question 20

The Barkley Company's balance sheet shows: what the business owns,minus what the business owes,equals the book value (or,net worth)of the business.

Accepted Answer

A) True 
 B)False

Exam 17: Understanding Accounting and Financial Information

In order to calculate the current ratio for your firm,you divide the total value of current assets by:

A firm's financial statements represent a health report regarding the condition of the firm.

When companies owe money to creditors,suppliers,and others,these outstanding amounts are recorded on the balance sheet as _________.

The Financial Accounting Standards Board only sets standards for accountants in the private sector;however,government accountants have no universally accepted procedures that they must follow.

The debt to owners' equity ratio is a common type of liquidity ratio.

The Barkley Company has recorded its unpaid bill for supplies under a current liabilities account on the balance sheet.This payment will be due to the supplier in less than a year.

Bookkeeping is part of the accounting cycle,but accounting goes far beyond the activities involved in bookkeeping.

The _____ account on the Balance Sheet shows profits that the firm has reinvested in the company.

An accountant who has a bachelor's degree,two years of experience in internal auditing and who has passed an exam by the Institute of Internal Auditors can become recognized as a certified internal auditor.

_______ refers to the value that stockholders or owners have in a company.

The Internal Revenue Service is responsible for establishing accounting standards used by accountants working in government accounting.

Liquidity refers to how quickly liabilities must be paid.

When Bark Three Times Pet Store sells inventory,the value of the cost of goods sold reported on the income statement will depend on which inventory valuation method it uses.

The most liquid asset is:

A lower than average inventory turnover ratio indicates excellent inventory management practices.

There are two major financial statements prepared at the completion of the accounting cycle: the journal and the ledger.

The Barkley Company's balance sheet shows: what the business owns,minus what the business owes,equals the book value (or,net worth)of the business.