Question 1

Peak Performance Sporting Goods Company competes with several other firms in the retail industry for important visibility and retail space in large stores.The company's chief financial officer knows that in order to attract investors,the company must demonstrate growth,and its management must outperform the competition.The CFO continuously watches __________________ because these are key to measuring growth.

Accepted Answer

A)   activity ratios
B)   profitability ratios
C)   leverage ratios
D)   liquidity ratiosE) A) and C)
F) B) and C)

Question 2

Net Profit refers to:

Accepted Answer

A)   The result of deducting liabilities from the assets of the firm.
B)   The result of subtracting cost of good sold from revenues.
C)   The result of deducting depreciation expense from revenues.
D)   The net earnings after the deduction of all expenses,including tax expense.E) C) and D)
F) A) and D)

Question 3

Which of the following responses is the best and most comprehensive? "A company's accounting information is useful to ____________."

Accepted Answer

A)   Managers within the firm,exclusively
B)   Marketing research firms for pricing insights
C)   Primarily the IRS and other government agencies that regulate the firm
D)   Managers,owners,creditors,employees,and the governmentE) A) and D)
F) A) and C)

Question 4

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 5

Given that measuring a firm's financial health is important to its survival,which of the following strategies is good advice for a person just starting a business?

Accepted Answer

A)   Create a method for keeping your books that makes sense to you.Outside agencies such as creditors and suppliers will not evaluate you by the way you keep books.
B)   All transactions are important.Separating transactions only serves to create a perception that some transactions are of lesser importance than others.
C)   Accounting systems used by big business are not suitable for small businesses.
D)   Select an accounting system that helps you make decisions,and helps you report information to others outside your firm.E) None of the above
F) All of the above

Question 6

_______ refers to the value that stockholders or owners have in a company.

Accepted Answer

A)   Assets
B)   Liabilities
C)   Owners' equity
D)   Contra receivablesE) A) and C)
F) C) and D)

Question 7

Bob Stewart plans to visit his financial planner today to discuss investment strategy.As a young,"20 something" accountant,he knows he can afford to invest in a few riskier investments.Which of the following ratios will be an important measure of profitability for Bob?

Accepted Answer

A)   Return on sales
B)   Return on equity
C)   Inventory turnover
D)   Acid test ratioE) None of the above
F) A) and C)

Question 8

If a firm has a debt to owners' equity ratio of .54 (or 54%) we can conclude that:

Accepted Answer

A)   It has relied more on debt than equity to finance its operations.
B)   The firm is likely to have trouble paying its short term debts when they come due.
C)   Its total liabilities are less than its owners' equity.
D)   The firm has expenses that are exactly 54% of its gross profit.E) A) and D)
F) None of the above

Question 9

Liquidity refers to how quickly liabilities must be paid.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

A(n) __________ provides accounting services to individuals or firms on a fee basis.

Accepted Answer

A)   contract accountant
B)   account agent
C)   public accountant
D)   independent accountantE) B) and C)
F) A) and B)

Question 12

There are two major financial statements prepared at the completion of the accounting cycle: the journal and the ledger.

Accepted Answer

A) True 
 B)False

Question 13

Ralph owns a small business.Some friends have suggested that he should switch from his current manual accounting system to one that is computerized.Ralph is not certain he wants to use computers in his small firm's accounting system.He is concerned about the time it would take to learn the system,and wonders whether the benefits will justify the costs of setting up the system.As a small business owner,Ralph would probably find that:

Accepted Answer

A)   Computer software tends to be very helpful to small business owners who lack strong accounting support within their companies.
B)   Today's accounting software tends to be very complex,so only people with extensive accounting experience can understand its features and use it effectively.
C)   Even though it is not yet cost effective,he should go ahead and adopt a computerized system,because government regulations will require most business functions to be computerized in the near future.
D)   Such systems actually reduce costs,because they eliminate the need to consult with an accountant.E) A) and B)
F) A) and C)

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

The "bottom line" of an income statement shows the firm's:

Accepted Answer

A)   Retained earnings.
B)   Gross profit.
C)   Net income or net loss.
D)   Owners' equity.E) B) and D)
F) All of the above

Question 16

The balance sheet is set up to reflect the Fundamental Accounting Equation.This equation shows:

Accepted Answer

A)   Assets = Liabilities + Owners' equity.
B)   Revenues - Expenses = Gross profit.
C)   Cash inflows = Cash outflows.
D)   Current assets + Current liabilities = Owners' equity.E) A) and C)
F) A) and B)

Question 17

Which of the following agencies would have the greatest impact on the methods used to record,classify,summarize,and interpret accounting information for the State of Kentucky's Department of Transportation?

Accepted Answer

A)   Commission on Accounting Practices for State Governments
B)   Government Accounting Standards Board
C)   Independent Not-For-Profit Accounting Standards Board
D)   Institute for Public Sector Accounting StandardsE) A) and B)
F) A) and C)

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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) B) and C)
F) A) and D)

Question 20

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

Accepted Answer

A)   A company's sources of funding.
B)   A company's ability to distribute goods or services in a timely manner.
C)   A company's ability to earn a profit over time.
D)   A company's capitalized value.E) B) and D)
F) A) and D)

Exam 17: Understanding Accounting and Financial Information

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

Correct Answer
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Net Profit refers to:

Correct Answer
verified

Which of the following responses is the best and most comprehensive? "A company's accounting information is useful to ____________."

Correct Answer
verified

A(n) __________ provides accounting services to individuals or firms on a fee basis.

Correct Answer
verified

Liquidity refers to how quickly liabilities must be paid.

Correct Answer
verified

_______ refers to the value that stockholders or owners have in a company.

Correct Answer
verified

The balance sheet is set up to reflect the Fundamental Accounting Equation.This equation shows:

Correct Answer
verified

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

Correct Answer
verified

There are two major financial statements prepared at the completion of the accounting cycle: the journal and the ledger.

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

Which of the following agencies would have the greatest impact on the methods used to record,classify,summarize,and interpret accounting information for the State of Kentucky's Department of Transportation?

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

If a firm has a debt to owners' equity ratio of .54 (or 54%) we can conclude that:

Correct Answer
verified

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

Correct Answer
verified

Given that measuring a firm's financial health is important to its survival,which of the following strategies is good advice for a person just starting a business?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The "bottom line" of an income statement shows the firm's:

Correct Answer
verified

Bob Stewart plans to visit his financial planner today to discuss investment strategy.As a young,"20 something" accountant,he knows he can afford to invest in a few riskier investments.Which of the following ratios will be an important measure of profitability for Bob?

Correct Answer
verified

Exam 17: Understanding Accounting and Financial Information

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

Correct AnswerverifiedShow Answer

Net Profit refers to:

Correct AnswerverifiedShow Answer

Which of the following responses is the best and most comprehensive? "A company's accounting information is useful to ____________."

Correct AnswerverifiedShow Answer

A(n) __________ provides accounting services to individuals or firms on a fee basis.

Correct AnswerverifiedShow Answer

Liquidity refers to how quickly liabilities must be paid.

Correct AnswerverifiedShow Answer

_______ refers to the value that stockholders or owners have in a company.

Correct AnswerverifiedShow Answer

The balance sheet is set up to reflect the Fundamental Accounting Equation.This equation shows:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

There are two major financial statements prepared at the completion of the accounting cycle: the journal and the ledger.

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

Which of the following agencies would have the greatest impact on the methods used to record,classify,summarize,and interpret accounting information for the State of Kentucky's Department of Transportation?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If a firm has a debt to owners' equity ratio of .54 (or 54%) we can conclude that:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Given that measuring a firm's financial health is important to its survival,which of the following strategies is good advice for a person just starting a business?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The "bottom line" of an income statement shows the firm's:

Correct AnswerverifiedShow Answer

Bob Stewart plans to visit his financial planner today to discuss investment strategy.As a young,"20 something" accountant,he knows he can afford to invest in a few riskier investments.Which of the following ratios will be an important measure of profitability for Bob?

Correct AnswerverifiedShow Answer

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