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Exam 17: Understanding Accounting and Financial Information

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Question 161

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Explain the meaning of the fundamental accounting equation and its relation to the balance sheet. If it is helpful, create an example using numbers.

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The fundamental accounting equation is a...

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Question 162

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The company controller asked Jade to determine if it could borrow more money for an expansion project. When she calculated a leverage ratio, she determined that the company already had 1.5 times as much debt as equity. Do you agree with her assessment that the company should back off with borrowing more funds at this time?

A) Yes, but if the company would increase sales, it could go ahead with borrowing more funds.
B) Not necessarily. She should investigate the debt to equity ratios of other firms in the same industry.
C) Yes, but the firm should pursue equity investment until the ratio equals 1:1.
D) Not necessarily. In poor economic times, it is good financial strategy for a firm to be highly leveraged.

E) A) and D)
F) B) and D)

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Question 163

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The balance sheet reflects the fact that assets equal the sum of liabilities and owners' equity.

The Barkatorium Pet Supplies accountant has recorded the following: Total current assets = $60,000, including Cash = $24,000; Accounts Receivable = $20,000; and Inventory = $16,000. Total assets = $230,000; Total current liabilities = $48,000; and Total current and long-term liabilities = $98,000. The store's current ratio = 1.25. The store's acid-test ratio = .92

At this point in time, Barkatorium Pet Supplies' balance sheet shows $100,000 in assets and $90,000 in liabilities. The company's accounting system will show the owners' equity as $190,000.

A ________ provides a summary of cash coming into and money going out of a firm from operations activities, financing activities, and investing activities.

Computerized accounting programs have eliminated the need to prepare a trial balance.

In order to understand if the results of ratio calculations indicate a financially strong company, the results

A major part of a bookkeeper's job is to interpret financial data and suggest strategies for improving the firm.

The purpose of the current ratio is to evaluate the firm's ability to

Fairlawn Partners Consulting is a management-consulting firm that provides its expertise to businesses that employ its services. Since it does not hold an inventory of goods or produce any goods itself

Your firm is a supplier to a major chain of discount stores. You have heard rumors that this chain of discount stores is struggling financially. Which financial ratios would indicate the discount store's ability or inability to pay its short-term debts?

Audrey works in the accounting department of Colorado Manufacturing. Today she will use the firm's ledger to summarize information that was posted over the most recent time period. Her goal is to determine if the accounts are balanced as required by the double-entry method of bookkeeping. To be sure they are correct, Audrey will prepare a(n)

As a certified public accountant, you would be working in the area of managerial accounting.

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

As Jaime was packing to return to college after his summer vacation, he realized that he owned many valuable things such as a laptop computer, a speaker system, and a Blu-ray player. An accountant would list all of these as Jaime's

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

In the course of their jobs, bookkeepers

As a bank loan officer, you are considering a loan application by Peak Performance Sporting Goods. The company has provided you with the following information: Peak Performance's debt to owners' equity ratio (rounded to the nearest tenth of a percent) is:

Thoroughly describe each of six parts of the accounting cycle.