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Exam 17: Understanding Accounting and Financial Information

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Question 101

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Mallory is running an income statement on her QuickBooks computer accounting program. Which of the following accounts will be used to calculate gross profit?

A) revenues, net sales, depreciation, and operating expenses
B) revenues, general expenses
C) revenues, cost of goods sold, tax expenses, net income before taxes
D) revenues, cost of goods sold

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

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Question 102

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The work of a certified management accountant is intended to enable people outside of the organization to make investment decisions.

A) True
B) False

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Question 103

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The Sarbanes-Oxley Act prohibits accounting firms from providing certain nonauditing work (such as consulting services) to companies they audit.

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. -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?

The income statement reports the difference between a firm's assets and its liabilities as of a certain date.

Net profit refers to

Rent, depreciation, and salaries are examples of

Accounting transactions are very important to a firm's operations. Which of the following activities would affect the firm's account balances?

Bob Stewart plans to visit his financial planner today to discuss investment strategy. As a young 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?

Many business decisions are made in hopes of improving a firm's bottom line. Which of the following financial statements will reveal a firm's bottom line?

If the economy began experiencing a prolonged period of deflation in which the prices of most goods are falling, many firms would find that the LIFO method of inventory valuation would result in higher reported profits.

The statement of cash flows identifies cash receipts and disbursements that result

Leverage ratios are concerned with the extent to which a firm relies on borrowed funds in its operations.

If the goal of a business is to pay lower taxes on its income during an inflationary period, it is likely to use the FIFO inventory costing method.

In order to calculate the current ratio for your firm, you divide the total value of current assets by

Liquidity refers to how quickly liabilities must be paid.

We would expect the inventory turnover ratio for a ski shop to be ________ than the turnover for a convenience store.

Skilled professionals who are primarily responsible for the development of strategies to minimize taxes are called

Portable Pet Care, Inc., has recorded the following on its income statement for the period ending December 31, 2019: 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.

Ernesto borrowed money from a friend to acquire a liquor license for his new pub, and gave him a written promise to repay the amount within six months. Ernesto should list this business debt as an operating expense on his pub's balance sheet.