Question 1

The Sarbanes-Oxley Act strengthens the protection for whistleblowers who report wrongful actions of company officers.

Accepted Answer

A) True 
 B)False

Question 2

Peak Performance Sporting Goods Company has just applied for a bank loan in order to expand the business. Using the most recent balance sheet data provided by the company owner, you calculate that the company's current ratio is 2.5. In your presentation to the company boss, you remark

Accepted Answer

A)  Peak Performance is currently having trouble meeting its short-term obligations. 
B)  Peak Performance has $2.50 that it owes each month, for every $1.00 of cash that it is generating. 
C)  Peak Performance has $2.50 of current assets for each $1.00 of current liabilities. 
D)  Due to the fact that most of Peak Performance's current assets are tied up in inventory, there is no need to worry about whether Peak Performance will be able to make loan payments. 
A)  Peak Performance is currently having trouble meeting its short-term obligations. 
B)  Peak Performance has $2.50 that it owes each month, for every $1.00 of cash that it is generating. 
C)  Peak Performance has $2.50 of current assets for each $1.00 of current liabilities. 
D)  Due to the fact that most of Peak Performance's current assets are tied up in inventory, there is no need to worry about whether Peak Performance will be able to make loan payments.

Question 3

Purchasing insurance, paying employees, and using supplies are examples of financial transactions.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A)  balance sheet 
B)  independent audit 
C)  mission statement 
D)  annual report 
A)  balance sheet 
B)  independent audit 
C)  mission statement 
D)  annual report

Question 5

Skilled professionals who are primarily responsible for the development of strategies to minimize taxes are called

Accepted Answer

A)  tax accountants. 
B)  certified public accountants. 
C)  certified management accountants. 
D)  certified internal auditors. 
A)  tax accountants. 
B)  certified public accountants. 
C)  certified management accountants. 
D)  certified internal auditors.

Question 6

Although managers who work for large firms must know something about accounting, people who run small businesses only need to know the basics of bookkeeping.

Accepted Answer

A) True 
 B)False

Question 7

Identify and explain the differences between LIFO and FIFO inventory valuation methods. What would be the difference in gross margin using FIFO versus LIFO?

Accepted Answer

FIFO stands for first-in, first-out. Thi

Question 8

Financial ratios that reflect the degree to which a firm relies on borrowed funds are called ________ ratios.

Accepted Answer

A)  leverage 
B)  liquidity 
C)  activity 
D)  profitability 
A)  leverage 
B)  liquidity 
C)  activity 
D)  profitability

Question 9

Money received from tickets sold for the Taylor Swift concert is recorded as net income on the concert promoter's income statement.

Accepted Answer

A) True 
 B)False

Question 10

The bottom line of an income statement shows the firm's

Accepted Answer

A)  retained earnings. 
B)  gross profit. 
C)  net income or net loss. 
D)  owners' equity. 
A)  retained earnings. 
B)  gross profit. 
C)  net income or net loss. 
D)  owners' equity.

Question 11

The acid-test ratio is found by dividing inventory by cost of goods sold.

Accepted Answer

A) True 
 B)False

Question 12

Double-entry bookkeeping can help identify a recording error made by a bookkeeper.

Accepted Answer

A) True 
 B)False

Question 13

A comparison of bookkeeping and accounting indicates that

Accepted Answer

A)  the two are virtually the same in practice. 
B)  bookkeeping involves recording financial information, while accounting is concerned with classifying, summarizing, and interpreting this information. 
C)  bookkeeping is more useful for small businesses while accounting is more useful for large businesses. 
D)  accounting is a subsystem of the process of bookkeeping. 
A)  the two are virtually the same in practice. 
B)  bookkeeping involves recording financial information, while accounting is concerned with classifying, summarizing, and interpreting this information. 
C)  bookkeeping is more useful for small businesses while accounting is more useful for large businesses. 
D)  accounting is a subsystem of the process of bookkeeping.

Question 14

Lyell owns 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." Lyell's attitude would be disastrous if he managed a large firm, but it is a reasonable view for a small business owner.

Accepted Answer

A) True 
 B)False

Question 15

Profitability ratios are often used to measure management's earnings performance.

Accepted Answer

A) True 
 B)False

Question 16

We would expect the inventory turnover ratio for a ski shop to be ________ than the turnover for a convenience store.

Accepted Answer

A)  higher 
B)  more meaningful 
C)  lower 
D)  less helpful 
A)  higher 
B)  more meaningful 
C)  lower 
D)  less helpful

Question 17

Which of the following responses is the best and most comprehensive? "A company's accounting information is useful to ________."

Accepted Answer

A)  managers within the firm, exclusively 
B)  marketing research firms for pricing insights 
C)  primarily the IRS and other government agencies that regulate the firm 
D)  managers, owners, creditors, employees, and the government 
A)  managers within the firm, exclusively 
B)  marketing research firms for pricing insights 
C)  primarily the IRS and other government agencies that regulate the firm 
D)  managers, owners, creditors, employees, and the government

Question 18

The ________ is a six-step procedure that results in the preparation and analysis of the major financial statements.

Accepted Answer

A)  double-entry method 
B)  financial management process 
C)  financial performance appraisal 
D)  accounting cycle 
A)  double-entry method 
B)  financial management process 
C)  financial performance appraisal 
D)  accounting cycle

Question 19

The ________ ratio helps determine the ability of a firm to repay its short-term debts even if it has difficulty selling its inventory.

Accepted Answer

A)  acid-test 
B)  cash flow 
C)  diluted current asset 
D)  required reserve 
A)  acid-test 
B)  cash flow 
C)  diluted current asset 
D)  required reserve

Question 20

The reports and financial statements prepared by accountants

Accepted Answer

A)  are more useful for profit-seeking businesses than they are for not-for-profit organizations. 
B)  are mainly used to help the firm complete its tax forms. 
C)  provide information that can be used by decision makers both inside and outside the organization. 
D)  are not as useful now that firms have moved into a more global environment. 
A)  are more useful for profit-seeking businesses than they are for not-for-profit organizations. 
B)  are mainly used to help the firm complete its tax forms. 
C)  provide information that can be used by decision makers both inside and outside the organization. 
D)  are not as useful now that firms have moved into a more global environment.

Exam 17: Understanding Accounting and Financial Information

The Sarbanes-Oxley Act strengthens the protection for whistleblowers who report wrongful actions of company officers.

Peak Performance Sporting Goods Company has just applied for a bank loan in order to expand the business. Using the most recent balance sheet data provided by the company owner, you calculate that the company's current ratio is 2.5. In your presentation to the company boss, you remark

Purchasing insurance, paying employees, and using supplies are examples of financial transactions.

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

Skilled professionals who are primarily responsible for the development of strategies to minimize taxes are called

Although managers who work for large firms must know something about accounting, people who run small businesses only need to know the basics of bookkeeping.

Identify and explain the differences between LIFO and FIFO inventory valuation methods. What would be the difference in gross margin using FIFO versus LIFO?

Financial ratios that reflect the degree to which a firm relies on borrowed funds are called ________ ratios.

Money received from tickets sold for the Taylor Swift concert is recorded as net income on the concert promoter's income statement.

The bottom line of an income statement shows the firm's

The acid-test ratio is found by dividing inventory by cost of goods sold.

Double-entry bookkeeping can help identify a recording error made by a bookkeeper.

A comparison of bookkeeping and accounting indicates that

Profitability ratios are often used to measure management's earnings performance.

We would expect the inventory turnover ratio for a ski shop to be ________ than the turnover for a convenience store.

Which of the following responses is the best and most comprehensive? "A company's accounting information is useful to ________."

The ________ is a six-step procedure that results in the preparation and analysis of the major financial statements.

The ________ ratio helps determine the ability of a firm to repay its short-term debts even if it has difficulty selling its inventory.

The reports and financial statements prepared by accountants

Taking Risks and Making Profits Within the Dynamic Business Environment

Understanding Economics and How It 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

Structuring Organizations for Todays Challenges

Production and Operations Management

Motivating Employees

Human Resource Management: Finding and Keeping the Best Employees

Dealing With Employeemanagement Issues

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

Appendix: Working Within the Legal Environment

Appendix: Using Technology to Manage Information

Appendix: Managing Risk

Appendix: Managing Personal Finances

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