Question 1

Frank, 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 _____.

Accepted Answer

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

Question 2

Explain how exchange rates influence international accounting practices. Why was the International Accounting Standards Committee established?

Accepted Answer

An exchange rate is the ratio at which a country's currency can be exchanged for other currencies. Daily changes in exchange rates affect the accounting entries for sales and purchases of firms involved in international markets. These fluctuations create either losses or gains for particular companies. The International Accounting Standards Committee was established to provide worldwide consistency in financial reporting practices and comparability and uniformity of international accounting standards.

Question 3

Which of the following is a noncash expense?

Accepted Answer

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

Question 4

A company's overall operating budget is a composite of many individual budgets for separate units of the firm.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

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

Question 6

All of the following are liabilities EXCEPT _____.

Accepted Answer

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

Question 7

A budget is essentially a long-term financial plan.

Accepted Answer

A) True 
 B)False

Question 8

If a firm has an asset turnover ratio of 2.00, it means that it needs $2 in assets to generate a $1 in sales.

Accepted Answer

A) True 
 B)False

Question 9

MATCHING
Complete the following using the terms listed.
-The basic relationship that states assets equal liabilities plus owners' equity is called the _____.

Accepted Answer

A)  certified public accountant
B)  International Financial Reporting Standards
C)  asset
D)  liability
E)  Owners' equityF) accounting equationG) balance sheetH) income statementI) Foreign Corruption Practices ActJ) accrual accountingK) open book managementL) budgetM) generally accepted accounting principles (GAAP) N) Financial Accounting Standards Board (FAS
B)  O) profitability ratiosP) International Accounting Standards Committee (IAS
C)  Q) Leverage ratiosrmanagement accountant

Question 10

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

Accepted Answer

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

Question 11

MATCHING
Complete the following using the terms listed.
-The _____ is a statement of a firm's financial position on a particular date.

Accepted Answer

A)  certified public accountant
B)  International Financial Reporting Standards
C)  asset
D)  liability
E)  Owners' equityF) accounting equationG) balance sheetH) income statementI) Foreign Corruption Practices ActJ) accrual accountingK) open book managementL) budgetM) generally accepted accounting principles (GAAP) N) Financial Accounting Standards Board (FAS
B)  O) profitability ratiosP) International Accounting Standards Committee (IAS
C)  Q) Leverage ratiosrmanagement accountant

Question 12

The GAAP standard of relevance ensures that one firm's financial statements can be compared with those of similar businesses.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A)   0.60
B)   1.00
C)   1.40
D)   2.00

Question 14

When examining a statement of cash flows, investors obtain relevant information about a firm's cash receipts and payments for its operations, investments, and financing during an accounting period.

Accepted Answer

A) True 
 B)False

Question 15

The current ratio is a leverage ratio.

Accepted Answer

A) True 
 B)False

Question 16

MATCHING
Complete the following using the terms listed.
-The _____ is a federal law that prohibits U.S. citizens and companies from bribing foreign officials to win or continue business.

Accepted Answer

A)  certified public accountant
B)  International Financial Reporting Standards
C)  asset
D)  liability
E)  Owners' equityF) accounting equationG) balance sheetH) income statementI) Foreign Corruption Practices ActJ) accrual accountingK) open book managementL) budgetM) generally accepted accounting principles (GAAP) N) Financial Accounting Standards Board (FAS
B)  O) profitability ratiosP) International Accounting Standards Committee (IAS
C)  Q) Leverage ratiosrmanagement accountant

Question 17

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

Accepted Answer

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 18

_____ activities focus on providing valuable assets to a business.

Accepted Answer

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

Question 19

Allen works as a supervisor at an automobile company. He is also the leader of the workers' union at the factory. Allen is most likely to use the accounting information of his company to:

Accepted Answer

A)   evaluate credit ratings.
B)   evaluate tax liabilities.
C)   use in contractual negotiations.
D)   make investment decisions.

Question 20

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

Accepted Answer

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

Exam 15: Understanding Accounting and Financial Statements

Frank, 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 _____.

Explain how exchange rates influence international accounting practices. Why was the International Accounting Standards Committee established?

Which of the following is a noncash expense?

A company's overall operating budget is a composite of many individual budgets for separate units of the firm.

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

All of the following are liabilities EXCEPT _____.

A budget is essentially a long-term financial plan.

If a firm has an asset turnover ratio of 2.00, it means that it needs $2 in assets to generate a $1 in sales.

MATCHING Complete the following using the terms listed. -The basic relationship that states assets equal liabilities plus owners' equity is called the _____.

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

MATCHING Complete the following using the terms listed. -The _____ is a statement of a firm's financial position on a particular date.

The GAAP standard of relevance ensures that one firm's financial statements can be compared with those of similar businesses.

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

When examining a statement of cash flows, investors obtain relevant information about a firm's cash receipts and payments for its operations, investments, and financing during an accounting period.

The current ratio is a leverage ratio.

MATCHING Complete the following using the terms listed. -The _____ is a federal law that prohibits U.S. citizens and companies from bribing foreign officials to win or continue business.

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

_____ activities focus on providing valuable assets to a business.

Allen works as a supervisor at an automobile company. He is also the leader of the workers' union at the factory. Allen is most likely to use the accounting information of his company to:

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