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Exam 17: Understanding Accounting and Financial Information

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Question 41

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During a period of rising prices, if a firm desires to report a low gross profit figure in hopes of reducing their income tax liability, the firm will use the inventory valuation method.

A) FIFO (first in, first out)
B) LIFO (last in, first out)
C) sliding scale
D) average cost

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

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Question 42

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With increased computer technology, the ability to read and understand financial statements is no longer an important skill for managers.

A) True
B) False

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Question 43

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Citywide Insurance Corporation's internal accountants can prepare an audit for the company.

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

In spite of his assertions that he carried-out fraud alone, convicted investment advisor Bernard Madoff's independent auditor is now under investigation. The auditor is accused of not doing his job. Rather than verify Madoff's company records, the F.B.I claims that he "rubber-stamped" the records. Knowing what you have learned about the importance of auditing, which of the following statements do you understand to be most accurate?

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

Financial accounting involves activities such as preparing budgets and measuring production costs.

Return on equity measures how much was earned for each dollar invested by the firm's creditors.

Gross profit represents profit after the deduction of cost of goods sold, and before the deduction of all other selling expenses, general expenses, and tax expense.

A(n) is an evaluation and unbiased opinion of the accuracy of a firm's financial statements.

A series of high-profile scandals in the early 2000s put the accounting profession under intense scrutiny.

Use the fundamental accounting equation to solve the following: Assets minus liabilities equals:

The best way for a firm to avoid serious cash flow problems is to sustain a rapid growth in sales.

The Barkley Company's balance sheet shows: what the business owns, minus what the business owes, equals the book value (or, net worth) of the business.

Churches, schools, and charitable organizations all hire accountants.

The key financial statements are the balance sheet, the income statement, and the statement of cash flows.

Oklahoma Chemicals plans to use its computers to post information from journals to the ledger instantaneously. One obvious benefit of this technology is:

According to the "Legal Briefcase" box in Chapter 17, a forensic accountant investigates company records for evidence of fraud.

Hap owns and operates a small business with only four full-time employees and less than $500,000 in annual sales. He currently uses a manual accounting system and relies on a part-time bookkeeper to keep his records in order. In evaluating the possible adoption of a computerized accounting system, Hap will probably discover that:

A firm's efficient use of its assets in running the business is key to maintaining sufficient cash flow. Ratios that accountants utilize to measure the efficient use of assets are called ratios.