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Exam 17: Understanding Accounting and Financial Information

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Question 31

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Portable Pet Care, Inc., successfully took out a loan for $155,000 from Bigbux Bank. It used $90,000 of this loan to pay off an existing loan that had a higher interest rate, and purchased X-ray equipment with the remaining funds. These events were noted as financing and investing activities on its balance sheet.

A) True
B) False

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Question 32

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Revenue, minus cost of goods sold =

A) retained earnings.
B) fundamental accounting equation.
C) gross profit.
D) net income.

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

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Question 33

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The Hendry Group wants to know the value of its owners' equity. It will total its assets and subtract its liabilities.

The purpose of liquidity ratios is to indicate the degree to which a firm relies on borrowed funds in its operations.

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

The inventory turnover ratio for all firms should be greater than 2 times.

As Jaime was packing to return to college after his summer vacation, he realized that he owned many valuable things such as a laptop computer, a speaker system, and a Blu-ray player. An accountant would list all of these as Jaime's

Henderson, Inc. owns land worth $800,000 and has $180,000 worth of cash in its bank account. In the asset section of the balance sheet, Henderson lists its land holdings prior to listing its cash since it is a higher value.

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

A lower than average inventory turnover ratio indicates excellent inventory management practices.

The ________ shows how the capital is structured in the business, including the value of assets and the amount the firm owes at a specific point in time.

FIFO is a method of computing net cash flows by subtracting financial inflows from financial outflows.

The balance sheet is set up to reflect the Fundamental Accounting Equation. This equation shows

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

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 major part of a bookkeeper's job is to interpret financial data and suggest strategies for improving the firm.

According to generally accepted accounting principles (GAAP), a firm must use the inventory valuation method that most accurately reflects the actual movement of goods through its inventory.

Jerome is an accountant employed full time by The Newport Company. Jerome is an example of a public accountant.

The U.S. government is a user of a firm's accounting information.

The three important financial statements prepared by accountants are