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Exam 17: Understanding Accounting and Financial Information

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Question 51

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As a certified public accountant, you would be working in the area of managerial accounting.

A) True
B) False

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Question 52

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Once a trial balance has been prepared, the next step of the accounting cycle involves:

A) Posting the information to the correct ledger accounts.
B) Completing a balance sheet and ratio analysis.
C) Preparing financial statements such as the balance sheet, income statement, and statement of cash flows.
D) Classifying the transactions into logical categories.

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

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Question 53

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Good decisions are based on good information. Organizations need accounting-to provide good financial information.

Bookkeeping is part of the accounting cycle, but accounting goes far beyond the activities involved in bookkeeping.

The job of reviewing and evaluating the records used to prepare a company's financial statements is referred to as auditing.

Many businesses now use computers and accounting software to simplify the mechanical aspects involved in accounting.

Money received from tickets sold for the Rolling Stones concert is recorded as net income on the concert promoter's income statement.

After recording a business's transactions, bookkeepers usually classify the recorded transactions into groups with common characteristics.

Accounting information is not relevant for nonprofit organizations.

The account on the Balance Sheet shows profits that the firm has reinvested in the company.

A loan officer at Southwest Bank is considering a loan application from Preferred Pet Care, Inc. He is concerned about the company's ability to make payments on the loan. The loan officer is likely to be interested in Preferred Pet Care's statement of cash flows.

Depreciation is a systematic write-off of the cost of a tangible asset that is listed on .

Recent accounting scandals raised serious questions about the legitimacy of an accounting firm performing both auditing and consulting work for the same company.

In order to understand if the results of ratio calculations indicate a financially strong company, the results:

Blast-off Airlines is a recent start-up commuter airline that flies between eight regional cities on the east coast. Although it has attracted numerous investors who see value in the company's service, it does not pay dividends. Last year, the firm claimed profits of $4,800,000, which will be used to purchase an additional commuter plane. The Balance Sheet accounts that will show this affect are:

Banks are likely to request a firm's balance sheet when determining whether or not to loan money to the firm. However, banks would have little interest in the firm's income statement since it covers a short period of time.

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

The debt to owners' equity ratio is a common type of liquidity ratio.

Accountant Alison Padilla was asked by her company's CEO to calculate the current return on equity. She quickly gathers Total Assets from the company balance sheet and the total net income from the income statement. Armed with this information, she will be able to provide the CEO with the information he/she requested.

Carole Grand and Bonnie Lamore run a shuttle service from Western Illinois to the busy Chicago O'Hare airport. Last month, they recorded the following: If 25% of their net income is paid to the government in taxes, what is their net income after taxes?