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Exam 17: Understanding Accounting and Financial Information

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Question 171

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Your firm is a supplier to a major chain of discount stores. You have heard rumors that this chain of discount stores is in financial difficulty. Which financial ratios would indicate the discount store's ability or inability to pay its short-term debts?

A) liquidity ratios
B) leverage ratios
C) activity ratios
D) profitability ratios

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

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Question 172

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The cash a firm raised from issuing new debt or equity capital would be reported on a statement of cash flows.

A) True
B) False

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Question 173

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Jim works in the accounting department at the Kansas Sunflower Corporation, where it is his job to record all transactions into journals. After completing this task, the next step in the accounting process is to:

In calculating cost of goods sold, Meg Malloy noticed that her accounting software included the freight charges on purchased goods. Your response to this procedure is:

A person's pulse rate and blood pressure are indicators of a person's health. Similarly, can help assess the health of a business.

The net income of a firm can change significantly depending upon the specific accounting procedures that are used for depreciation and inventory valuation.

The accounting profession follows generally accepted accounting principles as defined by .

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

Preferred Pet Care, Inc., has recorded the following on its income statement for the period ending, December 31, 2009: The return on sales = 34%. This return is outstanding and there is no need to compare this return to competitors in the veterinary services industry.

Jeremy operates his own small business, but he doesn't want to be bothered with accounting information. He tells his friends, "All I need accounting for is to prepare my income tax return for my business. I'll hire someone to do that for me." Jeremy's attitude would be disastrous if he managed a large firm, but is a reasonable view for a small business owner.

Government organizations such as the IRS and other government regulatory agencies are interested in a firm's accounting information in order to help the firm strategize about ways to cut costs in order to minimize net income before taxes.

Net income is simply the difference between revenue and cost of goods sold.

Stockholders of the Sasha Deal Company are concerned about irregularities in the firm's accounting system. One approach to identify problems in the records of the company would be to have a(n) performed.

Double-entry bookkeeping can help identify a recording error made by a bookkeeper.

Backstreet Books, a small eclectic bookstore in a bustling college town wants to open another store at the west end of campus. Allison Robards, the store owner, plans to visit her banker in the hopes of obtaining additional financing. In preparation for her visit, the banker asks her for the following information: Calculate the debt to equity ratio for Backstreet Books.

Juliet has found that her small business needs a better way to maintain accounting records and analyze business opportunities. Currently, she uses a manual accounting system. These days, any off-the-shelf accounting package available at a local software retailer should do an excellent job of meeting her firm's accounting needs.

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

Accountants record, classify, and the results of the financial information they gather.

The shows the assets, liabilities, and owners' equity of a firm, at a specific point in time.

Accounting involves both the recording and the interpreting of financial events.