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Exam 17: Understanding Accounting and Financial Information

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Question 181

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In the Making Ethical Decisions box titled "Would You Cook the Books?" the situation provides the student with an ethical dilemma that might present itself to an accounting professional. The story focuses on: Is it ethical to __________________________

A) transfer long-term liabilities on the balance sheet to the balance sheet of a secondary firm?
B) inflate the values of assets on the Balance Sheet?
C) account for sales and profits at a time period, before or after the time these sales and profits actually occurred?
D) change one's method of accounting for inventory during the same fiscal year?

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

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Question 182

Multiple Choice

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Tyler works as an accountant for a mid-sized retail store. He has just completed a trial balance that resulted in no unexpected problems. Tyler's next task is likely to be:

A) conducting the full audit.
B) preparing a tax return for the company.
C) preparing the store's balance sheet and other major financial statements.
D) presenting the trial balance to the company owners.

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

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Question 183

Multiple Choice

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

Harrison Manufacturing owns land worth $600,000 and has $130,000 worth of cash in its bank account. In the asset section of the balance sheet, Harrison lists its land holdings prior to listing its cash since it is a higher value.

An extremely high inventory turnover ratio may represent lost sales due to holding inadequate stocks of merchandise.

Accountants do the work involved in recording financial events and transactions, but the actual classifying and interpreting of this data is left to financial managers.

According to the Adapting to Change box, the SEC is determined to crack down on and punish those accused of fraud. However, so many auditors and CPAs are trained in how to search for fraud that there are too many cases to prosecute.

As a bank loan officer, you are considering a loan application by Peak Performance Sporting Goods. The company has provided you with the following information from its balance sheet: Peak Performance's current ratio is:

Heather works in the accounting department of Colorado Manufacturing. Today she will use the firm's ledger to summarize information that was posted over the most recent time period. Her goal is to determine if the accounts are balanced as required by the double-entry method of bookkeeping. To be sure they are correct, Heather will prepare a(n) :

At this point in time, Bark Three Times Pet Store's balance sheet shows $100,000 in assets and $90,000 in liabilities. The company's accounting system will show the owners' equity as $190,000.

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 a(n) :

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:

Courtney McRae started the Row-Your-Boat paddle boat and row boat business at a nearby lake resort. She wanted to combine her accounting degree with her love of the outdoors and fishing. One of her first business purchases was a computerized accounting system. She learned in her college classes that a good software system will eliminate accounting cycle steps and the time it takes for her to interpret the results. As she put it, "It should make the decisions for me!"

Which financial statement reports the company's revenues and selling costs over a period of time?

Generally, a high ___________ ratio could lead investors and creditors to view the company as being very risky.

When reviewing the balance sheet for Preferred Pet Care, Inc., a mobile small animal care business, Julian noted the following information: Company assets totaling $3.5 million, and liabilities totaling $1.3 million. On paper, the net worth (owners' equity) for this business = ____________.

A ___________ provides a summary of cash coming into and money going out of a firm from operations activities, financing activities, and investing activities.

In large companies, certified internal auditors are usually responsible for preparing tax returns and developing tax strategies for businesses.

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?

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