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Exam 17: Understanding Accounting and Financial Information

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Question 101

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Carlisle Communications is preparing its statement of cash flows. Among other things, this statement will show:

A) net income from operations after taxes.
B) general expenses and operating expenses.
C) cash inflows and cash outflows that resulted from financing activities.
D) the total owners' equity for the firm.

E) None of the above
F) B) and D)

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Question 102

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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.

A) Basic
B) Diluted
C) Restricted
D) Broad-based

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

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Question 103

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Stockholders of a company in a risky market environment would expect lower return on equity ratio than stockholders in a less risky market.

Given that measuring a firm's financial health is important to its survival, which of the following strategies is good advice for a person just starting a business?

Liabilities are reported on the income statement.

An analysis of the statement of cash flows can help a firm prevent cash shortages.

Liquidity refers to how fast an asset can be converted to cash.

Leverage ratios indicate the extent to which has been used to fund a business's operations.

A firm's annual report is a yearly statement of the financial condition, progress, and expectations of the organization during one year.

Financial accounting and managerial accounting are similar in that they both provide information intended primarily for people inside the organization.

An income statement reports what a company owns and owes on a certain day.

The area of accounting that provides managers inside the organization with information they need to make decisions is called:

Ralph owns a small business. Some friends have suggested that he should switch from his current manual accounting system to one that is computerized. Ralph is not certain he wants to use computers in his small firm's accounting system. He is concerned about the time it would take to learn the system, and wonders whether the benefits will justify the costs of setting up the system. As a small business owner, Ralph would probably find that:

Profitability ratios are often used to measure management's earnings performance.

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

The income statement computes net income by subtracting liabilities from assets.

Keith will graduate from Southern State University this year. He has accumulated $18,000 in student loans during his four years at college. An accountant would classify the loans as:

Perry is responsible for recording sales transactions at Turncoat Enterprises. Perry's company utilizes , to help minimize entry errors.

As a first step in the accounting cycle, involves the recording of business transactions.

Although a firm may use different inventory valuation methods, generally accepted accounting principles (GAAP) states that these methods must produce the same dollar value for the cost of goods sold.