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Exam 17: Understanding Accounting and Financial Information

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Question 161

Multiple Choice

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Although accounting has several specific uses, the overall purpose of accounting can be summarized as

A) to provide financial information that is useful to decision makers.
B) to meet the legal requirements of the Financial Accounting Standards Board (FASB) .
C) to allow the government to track business activity levels.
D) to compute the profit or loss and declared dividend of a business firm.

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

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Question 162

Multiple Choice

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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

A) generating revenue.
B) controlling inventory.
C) managing cash flows.
D) balancing assets with liabilities.

E) A) and B)
F) All of the above

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Question 163

Multiple Choice

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Dirty Dog's Drilling recently issued a corporate bond on which it expects to pay interest for the next twenty years. Dirty Dog's would record this as a ________ on its balance sheet.

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

Cash flow difficulties are unlikely for a firm that is profitable.

Financial accounting is used to provide information and analysis managers within the organization can use to assist them in decision making.

Minnie knows that Double Entry has a lot of short-term debt coming due in the next year, and wants to make sure that the company will have the ability to make the required payments. Given a troubling downturn in construction activity over the past couple of months, she is not confident that Double Entry can count on selling its current inventory of doors before the debt comes due. Which of the following ratios would be most relevant to Minnie?

Harrison, a potential investor, is interested in both Barkatorium's balance sheet and income statement when evaluating whether or not to invest.

________ 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.

A firm's financial statements represent a health report regarding the condition of the firm.

Explain the difference between current, fixed, and intangible assets. Give two examples of each of these different types of assets.

The fact that Minnie spends most of her time measuring costs and checking to see if departments are staying within their budgets suggests that she is often involved in

Audrey works in the accounting department of Colorado Manufacturing. Today she will use the firm's ledger to summarize information that was posted over the most recent time period. Her goal is to determine if the accounts are balanced as required by the double-entry method of bookkeeping. To be sure they are correct, Audrey will prepare a(n)

Rent, depreciation, and salaries are examples of

Although a firm may use different inventory valuation methods, generally accepted accounting principles (GAAP) states that these methods must produce the same dollar value for the cost of goods sold.

An individual who provides accounting services to individuals and businesses on a fee basis is referred to as a private accountant.

GAAP refers to a set of standards concerning accounting principles that were established by the Financial Accounting Standards Board.

One important source of financing for most small businesses is the owner's savings. If the owner contributes money to the business from his/her personal savings, it will be recorded in the owners' equity account on the balance sheet.

Expenses a firm incurs for insurance, office salaries, and rent are classified as

Financial accountants prepare reports for owners, creditors, suppliers, and others outside of the organization.