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Exam 17: Understanding Accounting and Financial Information

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Question 171

True/False

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A debt to owners' equity ratio of 25% indicates that a firm has more debt than equity.

A) True
B) False

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Question 172

Multiple Choice

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________ measures the amount of profit earned by a company for each share of outstanding common stock.

A) Basic earnings per share (basic EPS)
B) Diluted earnings per share (diluted EPS)
C) Simple earnings per share (simple EPS)
D) Return on shares outstanding (RSO)

E) C) and D)
F) A) and D)

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Question 173

Multiple Choice

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The ________ sets accounting standards used in government accounting.

Resources that a firm owns are called

Sydney is a member of a conservative political group that wants to identify and publicize examples of wasteful government spending. The type of accounting information Sydney and her group will follow most closely is provided by certified public accountants.

The LIFO method of inventory valuation assumes the newest items in inventory are sold first.

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

As an accountant, Janice's responsibilities include

The cost of goods sold reflects the selling price of the merchandise sold over a period of time.

________ involves the review and evaluation of the records that are used to prepare the organization's financial statements.

The most liquid asset is

A firm's basic earnings per share measures how much profit was earned for each dollar invested by the firm's owners.

Mini-Case Minnie A. Wright-Hoff works as an accountant for Double Entry Doors, Inc. Her company sells and installs oversized garage doors needed by large vehicles. Most of Minnie's work involves helping department heads and other decision makers by measuring and reporting costs for their departments, and by identifying areas where departments are exceeding their budgets. However, as one of only three accountants employed by Double Entry Doors, Minnie is something of a "jill-of-all-trades" in terms of her accounting assignments. For example, she recently spent several hours summarizing all of the financial data in account ledgers to see if the information was correct and balanced. Her efforts revealed no problems, so she is now ready to start working on the firm's financial statements. Minnie is interested in this part of the accounting cycle because she likes to be one of the first to know the "bottom line" her company will report. She knows that she and the other accountants who work on these statements can influence the results by the choices they make about the way they report certain items. -Double Entry Door's suppliers maintained very stable prices for many years, but Minnie has noticed that the cost of doors has been rising steadily for the past few years. She is concerned that, given the company's current accounting methods of basing its cost on the most recent doors purchased, this will result in a much lower net income than in the past. The most likely reason for her concern is that Double Entry has apparently been using

Accounting provides financial information that can be useful to owners, creditors, suppliers, employees, and competitors of an organization.

Portable Pet Care, Inc., successfully took out a loan for $155,000 from Bigbux Bank. It used $90,000 of this loan to pay off an existing loan that had a higher interest rate, and purchased X-ray equipment with the remaining funds. These events were noted as financing and investing activities on its balance sheet.

Assets are reported on the firm's balance sheet.

As mentioned in the Adapting to Change box, accountants that search for fraudulent activities are called forensic accountants.

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.

During a period of rising prices, the FIFO technique of inventory valuation will result in a lower net income figure than would the LIFO technique.

Identify the three key financial statements that corporations are required to prepare, and describe the type of information found on each.