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Exam 17: Understanding Accounting and Financial Information

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Question 41

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

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Question 42

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Identify and explain the differences between LIFO and FIFO inventory valuation methods.What would be the difference in gross margin using FIFO versus LIFO?

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FIFO stands for first-in,first-out.This ...

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Question 43

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Sales receipts,purchase orders,and payroll records are all examples of accounting transactions that would be recorded by an) :

Rent,salaries,insurance and depreciation are examples of the cost of goods sold.

Cindy is concerned because during the past four months her company has experienced difficulty in paying its bills on time.She knows if this continues,the firm will have difficulties in accomplishing its goals.Cindy is concerned with:

Jose just graduated from college with a bachelor's degree in accounting.He plans to go to work for the American Cancer Society as an accountant.Jose will be an) :

When valuing items in inventory for financial reporting purposes,generally accepted accounting principles GAAP)requires firms to value the cost of goods sold by assuming that the items that have been in inventory the longest are the ones that are sold first.

As the burden of taxes grows,the role of the auditor becomes increasingly important to the organization.

CPA Experts,Inc. ,a well-known public accounting firm has enjoyed a long-standing relationship with one of its clients,Generation Technologies,Inc.Recently,at a company-wide gala,the CEO of Generation Technologies announced that CPA Experts has performed the firm's independent audits for the past ten years,and he is looking forward to exploring other services that CPA Experts has to offer,including financial consulting."After all," he exclaims,"A recent magazine article called CPA Experts the 'profitability geniuses '!" As a senior accountant for Generation Technologies,how do you advise your CEO?

To effectively run a business,it is necessary to:

Bark Three Times Pet Store's owner is concerned with how his business decisions affect the "bottom line".This is another way of saying that he is concerned with the impact of his decisions on net income after taxes.

Resources that a firm owns are called:

Both the current ratio and the acid-test ratio are liquidity ratios.

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 Barkley Company has recorded its unpaid bill for supplies under a current liabilities account on the balance sheet.This payment will be due to the supplier in less than a year.

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

It is impossible to run a company effectively without the ability to read and understand basic accounting reports and financial statements.

Preferred Pet Care Clinic,Inc is a mobile veterinary care company that travels to its clients' homes to administer veterinary care to well and sick pets.Its business is booming,with a full schedule of appointments each week.On a weekly basis,the office manager orders a larger amount of vaccines,antibiotics,and other products from its suppliers with the understanding that it will pay for these supplies in one month's time.A sizeable percentage of Preferred Pet Care's clients are elderly persons who are on fixed incomes.These customers eventually pay their bills,but usually not upon receipt of service.It sometimes takes them upwards of two months to remit.As an accounting intern willing to advise the owner,which of the following statements is important to your analysis?

Recent accounting scandals raised serious questions about the legitimacy of an accounting firm performing both auditing and consulting work for the same company.

Which of the following responses is the best and most comprehensive? "A company's accounting information is useful to _____________."