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Exam 16: Understanding Accounting and Financial Information

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Question 61

Multiple Choice

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Our Gang Transfer Company has shown consistent profits over the past five years.However,the company has recently found itself in financial trouble due to cash shortages.This indicates that:

A) an accounting profit does not guarantee a positive cash flow.
B) the state of the economy is less important than financial control techniques.
C) the accountants apparently made a mistake when they prepared the trial balance.
D) it's not always important to prepare financial statements.

E) A) and C)
F) A) and B)

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Question 62

Multiple Choice

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Heather works in the accounting department of CanFar Manufacturing.Today she will summarize all the information that has been posted over the most recent period in the firm's ledgers.She wants to see if the accounts are balanced as required by the double-entry method of bookkeeping.Heather will do this by preparing a(n) :

A) statement of cash flows.
B) balance sheet.
C) account analysis.
D) trial balance.

E) A) and C)
F) B) and C)

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Question 63

True/False

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Liquidity refers to how soon liabilities must be paid.

Accounting software has proven to be especially helpful for small business owners.

Carol has worked as a bookkeeper for a small clothing store for almost three years.Her old boss recently retired and a new manager took over.The new manager frequently asks her for information and advice about how to interpret the information she records.Carol's experience as a bookkeeper means she is qualified to provide this type of advice.

For the last several years,Bill Havers has gone to accountant Chelsea Jones for help in preparing his personal income tax forms.He heard about Chelsea from his boss,who said she had done a good job helping the business design a new accounting system.Bill has been happy with Chelsea's work and feels that the fees she charges are quite reasonable.Chelsea would be classified as a(n) :

This morning,Evelyn will be transferring information in her company's journals and posting them to the:

Taxes are used for what purposes?

One of the statements prepared in the accounting cycle is the statement of cash flows.

One weakness of the acid-test ratio is that it puts too much emphasis on the ability to convert inventory quickly into cash.

Perry is responsible for recording all sales transactions that take place at Turncoat Enterprises.He must be careful that his recording is both accurate and thorough.Perry's work involves tasks associated with:

Accounts payable are listed as an asset on a firm's balance sheet.

A tax accountant is responsible for preparing tax returns and developing tax strategies.

Which of the following refers to items that can be converted into cash within one year?

In reviewing the financial results for the past month,the president of the company is surprised at how low the sales amount is.She is wondering if all sales for the month have been properly recorded.When asked to investigate this issue,the accountant would refer to the:

Cash flow difficulties are unlikely for a firm that is growing rapidly.

The value of what stockholders own in a firm is called stockholders' equity.

The inventory turnover ratio measures the speed of inventory moving through the firm and its conversion into sales.

Jeremy operates his own small business,but doesn't want to be bothered with dealing 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." Jeremy's attitude would be disastrous if he managed a large firm,but is a reasonable view for a small business owner.

Explain the difference between current,fixed,and intangible assets.Give two examples of each of these different types of assets.