Question 1

A firm that takes on too much debt could experience problems repaying its lenders or meeting promises made to stockholders.

Accepted Answer

A) True 
 B)False

Question 2

The bottom line of the Cooper Corporation's income statement is equal to the net worth of the firm.

Accepted Answer

A) True 
 B)False

Question 3

Generally the higher the risk involved in an activity, the ________ the rate of return expected by investors.

Accepted Answer

A)   higher
B)   lower
C)   more stable
D)   less frequentE) C) and D)
F) B) and D)

Question 4

The statement of cash flows shows a firm's revenues, costs of goods sold, expenses, and net income.

Accepted Answer

A) True 
 B)False

Question 5

A basic difference between managerial accounting and financial accounting is that managerial accounting

Accepted Answer

A)   adheres to rules set by the GASB, while financial accounting uses a different group of rules set by the FASB.
B)   involves the preparation of the balance sheet and income statement while financial accounting involves the preparation of the statement of cash flows.
C)   handles recording and classifying information about transactions that have no direct financial impact on the firm, while financial accounting handles the recording and classifying of information about transactions that do have a financial impact.
D)   provides information primarily intended for managers and others inside the company, while financial accounting provides information primarily intended for people outside the organization.E) All of the above
F) None of the above

Question 6

The Newport Company balance sheet shows the following items: accounts payable totaling $60,000; salaries payable totaling $85,000; and notes payable totaling $120,000. These are liabilities, or money that the firm owes others.

Accepted Answer

A) True 
 B)False

Question 7

Coverall Insurance Corporation's internal accountants can prepare an audit for the company.

Accepted Answer

A) True 
 B)False

Question 8

Ivan will graduate from Great State University this year. He has accumulated $39,000 in student loans during his four years at college. An accountant would classify the loans as

Accepted Answer

A)   assets.
B)   liabilities.
C)   owners' equity.
D)   intangibles.E) All of the above
F) C) and D)

Question 9

For firms that sometimes have difficulty selling their inventory, the current ratio is likely to be a better measure of liquidity than the acid-test ratio.

Accepted Answer

A) True 
 B)False

Question 10

The accounting book or computer program where each day's transactions are first recorded is called a

Accepted Answer

A)   posting workbook.
B)   general ledger.
C)   balance sheet.
D)   journal.E) C) and D)
F) B) and D)

Question 11

You have just calculated the acid-test ratio for Peak Performance Sporting Goods [acid test ratio = 1.0]. As a loan officer for the local bank, you are called into your boss's office to interpret the results of this ratio. Which of the following statements best reflects an understanding of these results?

Accepted Answer

A)   A company with an acid-test ratio = 1.0 demonstrates the ability to operate very conservatively. The bank should anticipate that this firm will always be able to meet its short-term liabilities.
B)   This company is already having problems meeting its short-term liabilities.
C)   An acid-test ratio = 1.0 means that this firm has $1.00 in current assets for every $2.00 in current liabilities. Peak Performance is a well-run operation, as long as it can continue to sell off its inventory.
D)   An acid-test ratio = 1.0 tells us that without adequate inventory turnover, this company may represent a higher risk. Peak Performance's acid-test ratio shows that the firm maintains $1.00 in current assets for every $1.00 in current liabilities.E) B) and C)
F) B) and D)

Question 12

PharmaONE plans to use its computers to post information from journals to the ledger instantaneously. One obvious benefit of this technology is

Accepted Answer

A)   a reduction in the number of accountants required by the firm.
B)   less scrutiny from agencies such as the Internal Revenue Service.
C)   to shift financial decision making from people to programmed technology.
D)   readily available financial information.E) A) and D)
F) B) and C)

Question 13

There are five key working areas in accounting: financial accounting, managerial accounting, auditing, tax accounting, and governmental and not-for-profit accounting.

Accepted Answer

A) True 
 B)False

Question 14

Independent audits are prepared by accountants within the organization to ensure that proper accounting procedures are followed.

Accepted Answer

A) True 
 B)False

Question 15

The acid-test ratio emphasizes the ability to convert inventory quickly into cash.

Accepted Answer

A) True 
 B)False

Question 16

If prices of inventory are unchanged throughout the year, LIFO and FIFO inventory valuation methods will produce the same reported net income.

Accepted Answer

A) True 
 B)False

Question 17

Accounting information is NOT relevant for nonprofit organizations.

Accepted Answer

A) True 
 B)False

Question 18

The accounting scandals of the early 2000s led many people to question the legitimacy of

Accepted Answer

A)   ratio analysis as a means of evaluating the performance of a firm.
B)   the five-member Public Company Accounting Oversight Board (PCAO
B)   under the Securities and Exchange Commission (SE
C)   that had been created to oversee the accounting industry.
C)   publishing financial information about a firm on the Internet.
D)   allowing an accounting firm to do both consulting and auditing work for the same company.E) B) and D)
F) B) and C)

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Information contained in a firm's annual report largely represents work done by managerial accountants.

Accepted Answer

A) True 
 B)False

Exam 17: Understanding Accounting and Financial Information

Accounting information is NOT relevant for nonprofit organizations.

Correct Answer
verified

Information contained in a firm's annual report largely represents work done by managerial accountants.

Correct Answer
verified

Generally the higher the risk involved in an activity, the ________ the rate of return expected by investors.

Correct Answer
verified

The statement of cash flows shows a firm's revenues, costs of goods sold, expenses, and net income.

Correct Answer
verified

The Newport Company balance sheet shows the following items: accounts payable totaling $60,000; salaries payable totaling $85,000; and notes payable totaling $120,000. These are liabilities, or money that the firm owes others.

Correct Answer
verified

Independent audits are prepared by accountants within the organization to ensure that proper accounting procedures are followed.

Correct Answer
verified

The bottom line of the Cooper Corporation's income statement is equal to the net worth of the firm.

Correct Answer
verified

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

Correct Answer
verified

Ivan will graduate from Great State University this year. He has accumulated $39,000 in student loans during his four years at college. An accountant would classify the loans as

Correct Answer
verified

PharmaONE plans to use its computers to post information from journals to the ledger instantaneously. One obvious benefit of this technology is

Correct Answer
verified

Correct Answer
verified

If prices of inventory are unchanged throughout the year, LIFO and FIFO inventory valuation methods will produce the same reported net income.

Correct Answer
verified

The accounting scandals of the early 2000s led many people to question the legitimacy of

Correct Answer
verified

For firms that sometimes have difficulty selling their inventory, the current ratio is likely to be a better measure of liquidity than the acid-test ratio.

Correct Answer
verified

Coverall Insurance Corporation's internal accountants can prepare an audit for the company.

Correct Answer
verified

The acid-test ratio emphasizes the ability to convert inventory quickly into cash.

Correct Answer
verified

A basic difference between managerial accounting and financial accounting is that managerial accounting

Correct Answer
verified

A firm that takes on too much debt could experience problems repaying its lenders or meeting promises made to stockholders.

Correct Answer
verified

The accounting book or computer program where each day's transactions are first recorded is called a

Correct Answer
verified

There are five key working areas in accounting: financial accounting, managerial accounting, auditing, tax accounting, and governmental and not-for-profit accounting.

Correct Answer
verified

Exam 17: Understanding Accounting and Financial Information

Accounting information is NOT relevant for nonprofit organizations.

Correct AnswerverifiedShow Answer

Information contained in a firm's annual report largely represents work done by managerial accountants.

Correct AnswerverifiedShow Answer

Generally the higher the risk involved in an activity, the ________ the rate of return expected by investors.

Correct AnswerverifiedShow Answer

The statement of cash flows shows a firm's revenues, costs of goods sold, expenses, and net income.

Correct AnswerverifiedShow Answer

The Newport Company balance sheet shows the following items: accounts payable totaling $60,000; salaries payable totaling $85,000; and notes payable totaling $120,000. These are liabilities, or money that the firm owes others.

Correct AnswerverifiedShow Answer

Independent audits are prepared by accountants within the organization to ensure that proper accounting procedures are followed.

Correct AnswerverifiedShow Answer

The bottom line of the Cooper Corporation's income statement is equal to the net worth of the firm.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Ivan will graduate from Great State University this year. He has accumulated $39,000 in student loans during his four years at college. An accountant would classify the loans as

Correct AnswerverifiedShow Answer

PharmaONE plans to use its computers to post information from journals to the ledger instantaneously. One obvious benefit of this technology is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If prices of inventory are unchanged throughout the year, LIFO and FIFO inventory valuation methods will produce the same reported net income.

Correct AnswerverifiedShow Answer

The accounting scandals of the early 2000s led many people to question the legitimacy of

Correct AnswerverifiedShow Answer

For firms that sometimes have difficulty selling their inventory, the current ratio is likely to be a better measure of liquidity than the acid-test ratio.

Correct AnswerverifiedShow Answer

Coverall Insurance Corporation's internal accountants can prepare an audit for the company.

Correct AnswerverifiedShow Answer

The acid-test ratio emphasizes the ability to convert inventory quickly into cash.

Correct AnswerverifiedShow Answer

A basic difference between managerial accounting and financial accounting is that managerial accounting

Correct AnswerverifiedShow Answer

A firm that takes on too much debt could experience problems repaying its lenders or meeting promises made to stockholders.

Correct AnswerverifiedShow Answer

The accounting book or computer program where each day's transactions are first recorded is called a

Correct AnswerverifiedShow Answer

There are five key working areas in accounting: financial accounting, managerial accounting, auditing, tax accounting, and governmental and not-for-profit accounting.

Correct AnswerverifiedShow Answer

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verified

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