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Exam 17: Understanding Accounting and Financial Information

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Question 61

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According to generally accepted accounting principles (GAAP), a firm must use the inventory valuation method that most accurately reflects the actual movement of goods through its inventory.

A) True
B) False

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Question 62

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The return on sales ratio measures a firm's use of leverage.

A) True
B) False

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Question 63

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Liquidity refers to how fast an asset can be converted to cash.

During a period of rising prices, if a firm desires to report a low gross profit figure in hopes of reducing their income tax liability, the firm will use the ________ inventory valuation method.

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

In large companies, certified internal auditors are usually responsible for preparing tax returns and developing tax strategies for businesses.

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 from its balance sheet Peak Performance's current ratio is:

An analysis of the statement of cash flows can help a firm prevent cash shortages.

Barkatorium Pet Supplies established a line of credit with its local bank and used (borrowed) $95,000 against it to purchase its first year's inventory. Since it is required to repay the money before the end of its fiscal year, the company's accountant lists this liability with the current liabilities on the balance sheet.

________ measures the speed of inventory moving through the firm and its conversion into sales.

Which of the following is a key step in the accounting cycle?

Retailers attempt to sell older merchandise before more recently acquired merchandise is sold. The assumptions made by the ________ method of inventory valuation are most consistent with this approach.

Music Masters sells a unique assortment of sheet music including just about any published music ever written before 1970. Its customers are high school and college band directors and choir directors who require several copies of the same music, including music written for a variety of instruments. To buy inventory for resale, the business seeks out wholesalers with large inventories. Due to the fact that cash flow is always an important concern, the owner keeps a watchful eye on how quickly various genres of sheet music sell. To help him in this assessment, which of the following ratios would be an important part of this company's financial analysis?

________ earnings per share measures the amount of profit a firm earns per share of outstanding common stock when preferred stock, stock options, warrants, and convertible debt securities are also taken into account.

Rapidly growing companies often buy increasing amounts of merchandise from suppliers on credit, and then sell the goods to their customers on credit. These companies sometimes have difficulty repaying their suppliers when customers who buy on credit don't pay on time. Firms that experience this difficulty need to do a better job of

The steps in the accounting cycle do not need to be followed in the order stated. Monthly financial statements can be prepared with a good amount of accuracy, prior to posting in the ledger or preparing the trail balance.

The LIFO method of inventory valuation bases the cost of goods sold on the cost of

George works in the accounting department at the Green Goddess Lawn Services, where it is his job to record all transactions into journals. After completing this task, the next step in the accounting process is to

A company's income statement is important to accountants and other stakeholders. It reveals a

The preparation of financial statements for people outside the firm (creditors, unions, suppliers, and others) is the goal of