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Exam 17: Understanding Accounting and Financial Information

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Question 101

True/False

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The job of reviewing and evaluating the records used to prepare a company's financial statements is referred to as auditing.

A) True
B) False

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Question 102

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Johnson Products is a small manufacturing firm specializing in custom-order tool and die work.A computerized accounting system would help Johnson Products by:

A) Making key accounting and financial decisions.
B) Helping management identify cash flow and other financial difficulties more quickly.
C) Eliminating the need to prepare financial statements and other reports.
D) Eliminating the need to perform the three middle steps of the accounting cycle.

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

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Question 103

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Resources that a firm owns are called:

Accountants not only provide financial information to the firm,they:

Thoroughly describe each of six parts of the accounting cycle.

Accounting recognizes that assets,such as machinery and buildings,lose value over time.Accountants will record a portion of the cost of an asset as an expense each year through the use of:

What is ratio analysis? Explain the four different types of ratios and how each is used.

The purpose of a trial balance is to prepare a practice balance sheet.

Liquidity ratios are of particular importance to stockholders,but have little relevance for creditors.

A firm's balance sheet reports its financial condition on a specific date.

Zoey was asked by the company controller to determine if the company could borrow more money for an expansion project.When she calculated a leverage ratio,she determined that the company already had 1.5 times as much debt as equity.Do you agree with her assessment that the company should back off with borrowing more funds at this time?

The accounting book or computer program where each day's transactions are first recorded is called a:

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

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

The LIFO method of inventory valuation assumes the newest items in inventory are sold first.

Net income before taxes is found by deducting total operating expenses from gross profit.

Purchasing insurance,paying employees,and using supplies are examples of financial transactions.

Double-entry bookkeeping requires that every transaction be recorded in two places.

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

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 fact that Minnie wants to determine the "bottom line" for Double Entry Doors means that she is particularly interested in preparing her firm's: