Verified Test Bank Ch14 Accounting And Financial Statements - Business Foundations Changing World 11e Complete Test Bank by O. C. Ferrell. DOCX document preview.
Chapter 14
Accounting and Financial Statements
True / False Questions
1. | The terms accounting and bookkeeping are interchangeable. |
2. | In accounting, a ledger is a time-ordered list of accounting transactions. |
3. | Non-business entities typically obtain revenues through the sale of their assets. |
4. | The balance sheet presents a "snapshot" of an organization's financial position at a given moment. |
5. | Cash from investing activities is calculated from changes in the long-term liability accounts and the contributed capital accounts in owners' equity. |
Multiple Choice Questions
6. | Accounting refers to the process of
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7. | Which of the following is a function of the Public Company Accounting Oversight Board?
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8. | Evelyn is a self-employed, state-certified accountant who files tax returns, prepares financial records, and audits corporate financial records. She is known as a _____ accountant.
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9. | Matt is an auto mechanic who runs his own small shop. When tax season comes, he hires an accountant from one of "the Big Four" accounting firms to help him file his business's tax return. In this scenario, Matt has most likely hired a _____ accountant.
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10. | All of the following are part of "the Big Four" EXCEPT
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11. | Garrett wants to become a certified public accountant. To accomplish this, he must be certified by the _____ in which he plans to provide accounting services.
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12. | Amanda is a certified public accountant who provides accounting services to individuals and businesses. Which of the following rights does her certification give her?
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13. | The _____ Act required firms to be more rigorous in their accounting and reporting practices.
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14. | Which of the following is a requirement stated by the Sarbanes-Oxley Act?
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15. | Stanley is an executive of Fit Corp., a chain of fitness clubs. For years, he successfully hid illegal and misleading accounting practices, but eventually, he was exposed and punished with a jail sentence under the _____ Act.
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16. | All of the following contributed to the financial crisis in 2008 EXCEPT
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17. | The _____ Act limits the types of assets commercial banks can buy; the amount of capital they must maintain; and the use of derivative instruments such as options, futures, and structured investment products.
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18. | _____ accounting involves analyzing financial documents in search of fraudulent entries or financial misconduct.
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19. | Kevin works for the Internal Revenue Service. His main responsibility is rooting out evidence of cooked books at major companies. Kevin is a _____ accountant.
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20. | Jordan has been an accountant for many years. Since the accounting scandals in 2000, his firm added fraud-detection services, and Jordan decided to focus on these services. Which of the following organizations could certify Jordan, so he can focus on detecting fraud?
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21. | Vikram is an accountant employed by a large corporation. He works for the billing and taxation department, preparing and analyzing the company's financial statements. He is most likely to be a _____ accountant.
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22. | Which of the following types of accountants has titles such as controller, tax accountant, and internal auditor?
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23. | Carleigh is a private accountant who passed a rigorous examination by the Institute of Management Accountants. After passing this examination, Carleigh is a
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24. | Dexter works for a publishing company, recording its routine, day-to-day business transactions. His main responsibility is obtaining and recording the information his company needs to analyze its financial position. Based on this description, Dexter is most likely a(n)
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25. | Which of the following statements is true of bookkeeping?
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26. | Carol is an accountant who completed course work beyond a basic four- or five-year college accounting degree. Which of the following is something Carol's additional training allows her to do?
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27. | Harold owns a chain of coffee shops. He hires accountants to summarize the information from his company's business transactions into a financial statement. Which of the following is a reason Harold would use a financial statement?
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28. | _____ is the movement of money through an organization over a daily, weekly, monthly, or yearly basis.
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29. | The principal value of a budget lies in its
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30. | Deviations between expected operating expenses and _____ serve as a "feedback loop" to launch more detailed financial analyses in an effort to pinpoint trouble spots and opportunities.
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31. | Gary's Gadgets hired a managerial accountant to help forecast the company's expenses and income for its first year in business. This plan for how Gary's Gadgets plans to move from Point A to Point B over the course of the year is its
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32. | The single most important component of an annual report is the
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33. | Potential investors typically study the _____ in a firm's annual report to determine whether the company meets their investment requirements.
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34. | Small Bank, a short-term lender, examines Frank's Kitchen Fixtures' _____ to assess its ability to repay a loan quickly with cash generated from sales.
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35. | Thomson is a manager at a bank. He has to decide whether to lend $10,000 to Safe Toys, a company that produces toys that don't have a choking hazard. He should
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36. | When lending money, a long-term lender is more interested in a company's _____ and indebtedness to other lenders.
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37. | Kerry works for a large technology company as an engineer. As an employee, why should he look at his company's financial statements?
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38. | Emily's Embellishments, a craft store, displays various types of paper, stickers, glue sticks, yarn, canvases, paints, and other craft supplies on shelves. These items are examples of the company's
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39. | What is meant by owners' equity?
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40. | What are the fundamentals of the accounting process?
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41. | Ian got a loan from the Small Business Administration to start his own house contracting business. This loan is a(n)
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42. | When Harvey opened Harvey's Hardware Store, he convinced his family and friends to invest in the store. They invested money and assets to help him start and grow his business. The money and assets these investors contributed to Harvey's store comprise his
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43. | Which of the following equations is equivalent to the accounting equation?
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44. | Double-entry bookkeeping is a system of recording and classifying business transactions
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45. | Connor is using the double-entry bookkeeping system to account for all the transactions during his first month in business as an electrician. All of the following could be specific asset categories for Connor EXCEPT
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46. | Which of the following is the first step in the accounting cycle?
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47. | What is the last step that must be taken before a firm's books can be closed for an accounting cycle?
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48. | In the accounting cycle, after examining source documents and recording transactions in an accounting journal, what is the next step taken by a financial manager?
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49. | Nina, a manager at a small restaurant, is engaged in conducting the accounting cycle. She begins by examining checks, credit card receipts, sales slips, and other related evidence concerning specific transactions. Which of the following steps should she follow immediately after this step?
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50. | Nancy owns a bakery. She has already gathered and examined the checks, credit card receipts, sales slips, and other related evidence concerning specific transactions. She has also recorded each financial transaction in a journal and transferred that information into a ledger. What must Nancy do at the end of the accounting period?
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51. | Which of the following is true regarding financial statements?
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52. | An accounting term that is interchangeable with revenue is
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53. | An income statement shows
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54. | Cole owns a large chain of grocery stores. A significant part of his job is determining the amount of income left after taxes and whether the company will retain this income or pay it out in dividends to its stockholders. The income in this scenario is _____ income.
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55. | _____ is the total amount of money received from the sale of goods or services, as well as from other business activities such as the rental of property and investments.
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56. | Nonbusiness entities typically obtain revenue through
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57. | Do-It-Yourself Home Repair Shop started the accounting period with $10,000 worth of shovels in inventory. During the accounting period, it purchased $5,000 worth of shovels and sold $7,500 worth. In this scenario, what is the cost of goods sold?
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58. | Leslie owns a childcare company. Since this market is competitive, she has hired an advertising and sales manager to make sure potential customers know about her company. As a result, she must pay for advertising materials and her advertising and sales manager's salary. These expenses would be classified as _____ expenses.
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59. | In the context of expense accounts, salaries of executives and their staff are included under the category of _____ expenses.
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60. | Hannah has borrowed money from a bank to start her new hair salon and spa. Her direct costs of borrowing this money is known as her _____ expenses.
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61. | The process of spreading the costs of long-lived assets such as buildings and equipment over the total number of accounting periods in which they are expected to be used is called
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62. | Depreciation, a type of expense account, is included in the _____ category.
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63. | Craig's Construction Company bought a crane for $200,000, which it expects to be able to use for 50 years. Rather than showing an expense of $200,000 in the first year and no expense for the crane over the next 49 years, Craig can report depreciation expenses of _____ per year in each of the next 50 years because that better matches the cost of the machine to the years it is used.
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64. | Derek, an accountant, allocates the cost of a piece of earth-moving equipment over a specific period of time. Based on the given information, it can be concluded that Derek is implementing the process of
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65. | Which of the following is true of a piece of equipment when it is fully depreciated?
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66. | Net income is
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67. | Pals with Paws, a small pet store, is trying to determine its net income. To figure out this value, the company should equate the total profit or loss minus
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68. | Which of the following are the results of calculations made from the revenues and expenses accounts?
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69. | Companies record their _____ activities in the revenue and expense accounts during an accounting period.
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70. | At the end of each accounting period, the dollar amounts in all the revenue and expense accounts are moved into an account called
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71. | Gamers Inc., a videogame company, has decided to pay dividends to its shareholders. Which of the following accounts will doing so decrease?
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72. | The _____ presents a snapshot of an organization's financial position at a given moment.
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73. | Which of the following statements is true of the balance sheet?
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74. | Molly is preparing a balance sheet for her pet grooming company. Following long-established traditions, she lists items on her balance sheet on the basis of their
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75. | Which of the following is one of the most common format for balance sheets?
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76. | All asset accounts are listed in descending order of
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77. | _____ refers to money owed a company by its clients or customers who have promised to pay for the products at a later date.
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78. | Melanie manages a used car dealership that allows customers to buy cars for no money down and pay in installments throughout the year. Her company builds in a bad-debts adjustment that is deducted from the accounts receivable balance to present a more realistic view of the payments likely to be received in the future for these cars. The payments the company expects to receive are called
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79. | _____ represent a commitment of organizational funds of at least one year.
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80. | All of the following are items that are classified as fixed assets EXCEPT
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81. | A company's assets that are used or converted into cash within the course of a calendar year are called
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82. | Which of the following is an asset in the balance sheet?
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83. | A company's financial obligations to short-term creditors, which must be repaid within one year, are called its
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84. | Tom is completing a balance sheet for his home improvement company. He must include the amounts he owes to suppliers for lumber, tools, equipment, and other materials that he purchased with credit. These liabilities are called
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85. | An account that represents all unpaid financial obligations incurred by an organization is called
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86. | _____ includes the owners' contributions to a company along with income earned by the company and retained to finance continued growth and product development.
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87. | Each type of stock issued by a company represents a different claim on the organization, thus each must be represented by a separate owners' equity account called
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88. | The financial statement that explains how a firm's cash changed from the beginning of the accounting period to the end is called the
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89. | Paul's Plant Store wants to compute the revenues and expenses for its most recent accounting period to determine if it is making extra cash that it can use to invest in increased long-term capacity or to pay off its debts. To determine this, Paul should calculate cash from _____ activities by combining the changes in the revenue accounts, expense accounts, current asset accounts, and current liability accounts.
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90. | Which of the following categories of cash flow is calculated from changes in the long-term or fixed asset accounts?
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91. | Christy's Craft Company is paying off its long-term debt from the bank loan Christy secured to open the business several years ago. What does this scenario indicate?
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92. | When Pizza Palace decided to open several new locations, it spent billions of dollars on property and equipment. Which category of cash flow does this best describe?
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93. | _____ analysis refers to calculations that measure an organization's financial health.
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94. | All of the following are true of ratios EXCEPT they
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95. | Which of the following calculations helps managers compare an organization's productivity, profitability, and financing mix with other similar entities?
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96. | How does ratio analysis relate to the income statement and balance sheet?
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97. | One of the ways to analyze a company's financial performance is to compare its performance with those of the
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98. | Profitability ratios measure
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99. | Which of the following equations is correct?
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100. | Aaron's Automobiles experienced a huge recall on one of its best selling cars, and it had to spend $10 billion to fix all the recalled cars. Which of the following is most likely the result of this unexpected and expensive charge?
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101. | A company with a low return on assets
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102. | Return on assets and return on equity are examples of _____ ratios.
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103. | Camille's Closets, a closet design company, has a low return on equity. What does this indicate?
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104. | Which of the following equations is used to calculate return on equity?
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105. | Asset utilization ratios measure
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106. | Maurice was asked to extend trade credit to a restaurant she hadn't serviced before. She asked to see its balance sheet to determine if it could pay its bills. She divided its current assets by current liabilities to get its
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107. | The _____, an asset utilization ratio, indicates how many times a firm collects its accounts receivable in one year.
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108. | Debbie's Doormats has a high inventory turnover ratio because Debbie frequently sells and replaces her inventory over the course of a year. Which of the following might this scenario indicate?
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109. | Total asset turnover
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110. | _____ ratios compare current assets to current liabilities to indicate the speed with which a company can turn its assets into cash to meet debts as they fall due.
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111. | The measure of liquidity that reflects a company's liquidity ratio after excluding its inventory is the _____ ratio.
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112. | Chloe's Cosmetics doesn't have a lot of inventory. As a result, its _____ ratio is almost exactly the same as its current ratio.
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113. | _____ ratios provide information about how much debt an organization is using relative to other sources of capital, such as owners' equity.
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114. | Which of the following is a debt utilization ratio?
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115. | If a company is relying on borrowing and credit too extensively, this will probably be reflected in the _____ ratio.
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116. | Alma is an investor who wants to compare the performance of one publishing company with another on an equal, or per share, basis. What is a general finding associated with this practice?
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117. | Which of the following explains why the earnings per share ratio is important?
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Essay Questions
118. | What is the difference between a certified public accountant (CPA) and a private accountant?
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119. | Megan is the managerial accountant of Shield Corp. and has to prepare the financial statements for the current year. Discuss the steps that Megan should take prior to the preparation of the requisite financial statements of the company.
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120. | Discuss how analysts can use ratio analysis to evaluate a company’s financial performance.
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Document Information
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Business Foundations Changing World 11e Complete Test Bank
By O. C. Ferrell
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