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Exam 17: Understanding Accounting and Financial Information

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Question 141

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The bottom line of the Cooper Corporation's income statement is equal to the net worth of the firm.

A) True
B) False

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Question 142

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The acid-test ratio is found by dividing inventory by cost of goods sold.

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B) False

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Question 143

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The ________ is an accounting statement that reports the financial condition of a firm at a specific point in time.

Portable Pet Care, Inc., a mobile veterinary care clinic, has more appointments than it ever expected to have when it first hit the road. 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.

What is the difference between a journal and a ledger? How are journals and ledgers incorporated into the accounting cycle?

Terry is opening a small sports store in his town. At the advice of a friend who is a bookkeeper, he keeps the receipts of everything he purchases for the business in the bottom drawer of his desk, along with all other business expenses, such as his retail license, his rent expense, and insurance expense. You suggest that ________.

A balance sheet lists assets in order of their ________.

Depreciation is a systematic write-off of the cost of a tangible asset that is listed on

The income statement computes net income by subtracting liabilities from assets.

Coverall Insurance Corporation's internal accountants can prepare an audit for the company.

Information contained in a firm's annual report largely represents work done by managerial accountants.

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. -The last major task Minnie completed before getting ready to prepare the firm's financial statements was the preparation of the

A(n) ________ is an evaluation and unbiased opinion about the accuracy of a firm's financial statements.

________ is the monetary value that is received for goods sold, services rendered, and money received from other sources.

The use of computerized accounting systems ________.

Cash revenues from the sale of new cars at Five Star Autos would be listed as a cash inflow from operations on Five Star's statement of cash flows.

Accounting provides information about the financial condition and operating performance of a firm.

Similar to the example of FIFO and LIFO inventory accounting methods in the text, a college store purchased sweatshirts for the upcoming fall semester. Using the following data, where a total of 100 sweatshirts were purchased by the store and placed in inventory, select the correct statement from the following choices.

FIFO and LIFO are two common methods used to compute the depreciation of tangible assets.

You have just calculated the acid-test ratio for Peak Performance Sporting Goods [acid test ratio = 1.0]. As a loan officer for the local bank, you are called into your boss's office to interpret the results of this ratio. Which of the following statements best reflects an understanding of these results?