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Exam 17: Understanding Accounting and Financial Information

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Question 151

Multiple Choice

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McCartney Consulting Group is a management-consulting firm that provides its expertise to businesses that employ its services. Since it does not hold an inventory of goods or produce any goods itself:

A) its revenue will equal its net income.
B) its gross profit could be identical to its net revenue.
C) it is unlikely to have any operating expenses.
D) its balance sheet will not record any current assets.

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

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Question 152

Multiple Choice

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Peak Performance Sporting Goods Company has just applied for a bank loan in order to expand the business. Using the most recent balance sheet data provided by the company owner, you calculate that the company's current ratio is 2.5. In your presentation to the company boss, you remark:

A) Peak Performance is currently having trouble meeting its short-term obligations.
B) Peak Performance has $2.50 that it owes each month, for every $1.00 of cash that it is generating.
C) Peak Performance has $2.50 of current assets for each $1.00 of current liabilities.
D) Due to the fact that most of Peak Performance's current assets are tied up in inventory, there is no need to worry about whether Peak Performance will be able to make loan payments.

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

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Question 153

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Liquidity refers to how quickly liabilities must be paid.

Luther Landscapes will refer to its income statements to determine whether it was profitable, or whether it lost money over the past year.

The equipment a firm owns and the money it has in its bank account are considered assets.

As a recent college graduate with a degree in accounting, Jeff is helping a newly formed construction company set up its accounting system. Although the company had purchased accounting software, Jeff wants to make certain that future reports will distinguish between current liabilities and long-term liabilities. In the future, he will need to know the amount of total current liabilities in order to ____________________.

Benjamin works in the accounting department for a textbook publishing firm preparing budgets and reporting production costs. He is a:

The bottom line of an income statement shows the firm's:

A hospital emergency room serves several patients from a ten-car pile-up on the local interstate. Most of the victims require bandages, antibiotics, foot and arm casts, topical ointments, and pain pills. These items are part of the costs of good sold for the hospital emergency room.

Assets are listed on the balance sheet in order of liquidity, with the most liquid assets listed first.

Accounting is an easy subject for people to understand because almost everyone is exposed to basic accounting concepts in their everyday life.

__________ earnings per share measures the amount of profit a firm earns per share of outstanding common stock when preferred stock, stock options, warrants and convertible debt securities are also taken into account.

The fundamental accounting equation states: Assets = __________.

One way to make ratio analysis more meaningful is to compare the ratios of one firm to those of other firms in the same industry.

The use of computerized accounting systems ______________.

Earnings per share, return on sales, and return on equity are examples of:

For firms that sometimes have difficulty selling their inventory, the current ratio is likely to be a better measure of liquidity than the acid-test ratio.

Financial ratios are used to analyze a firm's financial condition and financial performance.

A bookkeeper's first task is to:

Jamal is an accountant employed full-time by The Barkley Company. Jamal is an example of a public accountant.