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Exam 17: Understanding Accounting and Financial Information

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Question 91

True/False

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The Montgomery Company balance sheet shows the following items: accounts payable totaling $50,000; salaries payable totaling $65,000; and notes payable totaling $100,000. These are liabilities, or money that the firm owes others.

A) True
B) False

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Question 92

Multiple Choice

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As U.S. firms focus on cost cutting in order to stay competitive with producers in low-wage countries, they will rely on __________ to create strategies to help reduce costs.

A) managerial accountants
B) financial accountants
C) government accountants
D) auditors

E) None of the above
F) A) and B)

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Question 93

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

Many businesses now use computers and accounting software to simplify the mechanical aspects involved in accounting.

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

In addition to the tasks of recording and classifying accounting information, the best accounting software programs currently available for small businesses have the ability to make financial decisions, thus eliminating the need for owners of small businesses to consult with accountants or understand accounting terminology.

Important provisions of the Sarbanes-Oxley Act:

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?

The cost of goods sold includes all the costs of buying and keeping merchandise available for sale.

Rent, depreciation, and salaries are examples of:

Phil O'Keefe 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 ________.

Perry is responsible for recording sales transactions at Turncoat Enterprises. Perry's company utilizes ______________________, to help minimize entry errors.

________ measures the amount of profit earned by a company for each share of outstanding common stock.

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

Because each business is unique, the accounting profession recognizes that the accounting principles followed by one company may need to be completely different from the accounting principles followed by another firm.

Company resources that are purchased with the intention that they will convert to cash within one year are:

The current ratio is found by dividing the firm's total assets by its total liabilities.

Costas Calendar Company's Statement of Cash Flows showed the following activities for the year ended December 31, 2016: The year-end cash balance for this firm is:

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?

Inputs to the accounting system include sales documents.