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Exam 17: Understanding Accounting and Financial Information

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Question 131

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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:

A) The FIFO inventory valuation method to determine its cost of goods sold.
B) A great deal of equity financing to purchase the doors.
C) The LIFO inventory valuation method to determine its cost of goods sold.
D) A depreciation method based on the average value of inventory.

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

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Question 132

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Bark Three Times Pet Store's 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

A) True
B) False

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Question 133

Multiple Choice

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An accountant who works for a single business or government agency is referred to as a:

The total cost of goods sold reported on an income statement is not affected by the inventory valuation method the firm uses.

At this point in time, Bark Three Times Pet Store's 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.

Peak Performance Sporting Goods Company has just applied for a bank loan in order to expand the business. Using the most recent Balance Sheet data provided by the company owner, you calculate that the company's current ratio is 2.5. In your presentation to the company boss, you remark:

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.

Which of the following would be classified as a general expense on an income statement?

Although managers who work for large firms must know something about accounting, people who run small businesses only need to know the basics of bookkeeping.

The current ratio is a type of ratio.

Managers who are concerned about keeping costs under controlshould be very interested in the information and advice provided by their company's managerial accountants.

Preferred Pet Care, Inc. a mobile veterinary care clinic has more appointments than it ever expected to have when it opened its doors. Each week it orders more vaccines, antibiotics, and preventive care supplies from a major veterinary supplier, with the understanding that it will pay for these supplies in one month's time. Most of the company's clients are elderly and on fixed incomes, and often do not pay for services for two or more months. This is not a problem because as long as the company continues to increase its appointments, it will create profits and growth.

Debts that are due in one year or less are classified on the Balance Sheet as:

A lower than average inventory turnover ratio indicates excellent inventory management practices.

Allison Robards is the owner of Backstreet Books, a small eclectic style bookstore in a bustling college town. Allison prides herself in selecting hard to find books and magazines that her clientele enjoy. Recently, Allison is experiencing a cash flow shortage, and she is concerned that she may be purchasing too many copies of each title. Having recently completed a business class, you suggest to Allison that she calculate the ratio for her store, and then compare it to other stores in her industry.

The accounting profession is divided into 5 key working areas, two of which are:

According to the boxed material in the Legal Briefcase box in Chapter 17, you would be most likely to ask for the help of a forensic accountant if you:

As noted in the story about the Bakery Barn, CPA Sean Perich's small business venture, trying to be everything for your business is often an impossible task. Due to the fact that solid accounting procedures are one of the lifelines for your business, it makes sense to hire an accountant even if you are knowledgeable about that functional unit of the business.

The is a six-step procedure that results in the preparation and analysis of the major financial statements.

The two major classes of operating expenses are current expenses and long-term expenses.