Deck 1: Fundamentals of the Business World

Question 1

Pedro's job is to keep track of all of the company's financial transactions and record them. Pedro is

A) a bookkeeper.
B) a financial manager.
C) a department head.
D) an investor.
E) a board member.

Answer 1

a bookkeeper.

Question 2

If you were doing managerial accounting tasks, you might be

A) preparing accounting information analyses for people outside the company.
B) performing audits.
C) managing and controlling inventory and production costs.
D) preparing and filing taxes.
E) preparing documents for government agencies.

Answer 2

managing and controlling inventory and production costs.

Question 3

Delores is a financial accountant. One of her roles is to

A) prepare accounting information and analyses for managers and decision makers.
B) prepare and monitor department and company-wide budgets.
C) analyze the costs of production and marketing.
D) manage and control inventory and production costs.
E) perform audits to ensure accuracy of the financial information.

Answer 3

perform audits to ensure accuracy of the financial information.

Question 4

Lester, Lester & Lester, a law firm, has an accountant on staff to manage its financial information. This accountant is a(n) ________ accountant.

A) private
B) public
C) organization
D) not-for-profit
E) community

Question 5

Zenon is an accountant for the United Way, a charitable organization. Zenon is a(n) ________ accountant.

A) private
B) public
C) organization
D) not-for-profit
E) community

Question 6

What is the name of the standards that accountants must follow to ensure the financial statements they prepare are relevant, reliable, consistent, and comparable?

A) General Accounting Rules and Regulations
B) Generally Accepted Accounting Principles
C) U.S. Accounting Standards
D) Global Accounting Standards
E) Standard Operating Procedures for Accounting

Question 7

According to the Generally Accepted Accounting Principles (GAAP), financial statements must be relevant, consistent, reliable, and

A) timely.
B) subjective.
C) comparable.
D) understandable.
E) flexible.

Question 8

In which step in the accounting process would a company find and sort data from all transactions related to the business?

A) analysis
B) reporting
C) summarization
D) classification
E) collection

Question 9

The double-entry bookkeeping format is used during the ________ step of the accounting process.

A) analysis
B) reporting
C) summarization
D) recording
E) collection

Question 10

Carla was balancing the books when she realized that she entered a transaction of $102.50 in one place, but she entered the same transaction as $105.20 in another place. Carla was able to catch this error because she was using the ______ method of bookkeeping.

A) single-entry
B) spreadsheet
C) double-entry
D) journal
E) debit/credit

Question 11

When bookkeepers put journal entries into categories in a ledger, they are in which step of the accounting process?

A) classification
B) reporting
C) summarization
D) recording
E) collection

Question 12

At the end of an accounting period, the bookkeeper prepares a(n) ______ to ensure that the data in the ledgers is accurate.

A) interim status
B) trial balance
C) ledger standing
D) debit/credit review
E) expense report

Question 13

During which step of the accounting process is a trial balance run?

A) classification
B) reporting
C) summarization
D) recording
E) collection

Question 14

In which step of the accounting process does ratio analysis play a role?

A) classification
B) reporting
C) summarization
D) recording
E) analysis

Question 15

The ________ provides a summary of a company's financial condition on a given date.

A) balance sheet
B) trial balance
C) activity ratio
D) debt to owners' equity ratio
E) statement of cash flows

Question 16

The statement "assets = liabilities + owners' equity" is called the

A) balance statement.
B) balance formula.
C) asset equation.
D) accounting calculation.
E) accounting equation.

Question 17

The essential characteristic of current assets is their

A) liquidity.
B) tangibility.
C) value.
D) cost.
E) commonality.

Question 18

On the balance sheet, insurance would be listed a(n)

A) marketable security.
B) fixed liability.
C) one-time expense.
D) prepaid expense.
E) fixed expense.

Question 19

Nakia has a small accounting company with three employees. She buys each person a new computer every three years. The reduction in value of Nakia's older computers would be listed on a balance sheet as

A) asset decay.
B) accumulated depreciation.
C) asset decline.
D) inventory deterioration.
E) equipment downgrade.

Question 20

Sunee's employees love her management style, and most have been with her since she started the business. They would not work for anyone else. Sunee's employees are a(n) ________ asset.

A) receivable
B) current
C) fixed
D) intangible
E) tangible

Question 21

Akito has not yet paid the rent on his office for the month. How would this debt be labeled on a balance sheet?

A) notes payable
B) fixed liability
C) accounts payable
D) long-term liability
E) common liability

Question 22

A mechanic took out a mortgage from a bank to buy the garage he and his employees work out of. How would this be listed on a balance sheet?

A) notes payable
B) fixed liability
C) accounts payable
D) long-term liability
E) common liability

Question 23

As it pertains to the balance sheet, ________ stock is the amount of stock that has been allocated to owners of the company.

A) preferred
B) equity
C) dividend
D) share
E) common

Question 24

Yelena just completed her income statement. She included her company's sales revenue, operating expenses, and net income. Which principal part of an income statement did Yelena forget to include?

A) profit
B) cost of goods sold
C) taxes
D) liabilities
E) payroll expenses

Question 25

Paresh called his investors to let them know that the funds received from all sales of the firm's products reached $1 million, not counting returns or allowances. Paresh was referring to his

A) cost of goods sold.
B) gross profit.
C) current assets.
D) gross sales.
E) net sales.

Question 26

Paresh's investors informed him that his $1 million in sales minus sales returns, allowances, and cost of goods sold of $900,000, left only $100,000 in

A) cost of goods sold.
B) gross profit.
C) sales revenues.
D) gross sales.
E) net sales.

Question 27

A company's insurance costs, supplies, and utilities are all ________ expenses.

A) selling
B) depreciation
C) administrative
D) interest
E) operating

Question 28

The cash flow statement reports disbursement relating to the firm's operating activities, investing activities, financing activities, and

A) income statement.
B) cash balance.
C) net sales.
D) increase in cash.
E) gross profit.

Question 29

In a cash flow statement, cash flows from investing activities would include

A) cash received from sales.
B) payment of notes payable.
C) payment of mortgage payable.
D) purchase of equipment.
E) cash paid for inventory.

Question 30

Rashid is analyzing his firm's financial statements to provide top management with a better understanding of the firm's financial performance. One way to do this is through ________ analysis.

A) liability
B) ratio
C) cash flow
D) cash balance
E) asset

Question 31

Ratio analysis can be used to analyze a firm's performance compared to

A) its previous year's performance.
B) its objectives.
C) the industry as a whole.
D) its liquidity.
E) its profitability.

Question 32

Melanie's Diner has current assets of $75,000 and current liabilities of $16,500. She is expecting sales this week of $12,500. What is Melanie's Diner's current ratio?

A) 5.30
B) 4.54
C) 6.0
D) 8.3
E) 22

Question 33

What is used to evaluate how well management uses a firm's assets to generate revenue?

A) efficiency ratio
B) liquidity ratio
C) acid-test ratio
D) current ratio
E) debt to owners' equity

Question 34

Pretzels & Pilates is trying a new retail model that combines selling salted pretzels before a rigorous Pilates workout in order to "carbo load." At the end of the first six months, how could P&P determine its pretzel inventory turnover ratio?

A) current assets divided by current liabilities
B) cash + receivables divided by current inventory
C) total liabilities divided by owners' equity
D) total inventory divided by average inventory
E) cost of goods sold divided by average inventory

Question 35

A low inventory turnover ratio may indicate

A) higher revenue.
B) having to replenish inventory often.
C) low customer satisfaction.
D) having too much obsolete inventory.
E) efficiency in selling inventory.

Question 36

Dr. Badger's Pet Store is applying for a loan from the bank. The company has liabilities of $670,000 and owners' equity of $250,000. What is the debt to owners' equity ratio for Dr. Badger's Pet Store?

A) 4.20 percent
B) 3.11 percent
C) 2.68 percent
D) 0.37 percent
E) 1.10 percent

Question 37

The ________ ratio measures the extent to which a company uses debt to finance its operations.

A) liquidity
B) activity
C) profitability
D) debt to owners' equity
E) liability

Question 38

Seren works for Alpha Communications and is responsible for preparing and analyzing the company's financial statements. Seren can be best described as a(n)

A) bookkeeper.
B) ratio analyst.
C) accountant.
D) investor.
E) journal analyst.

Question 39

Emre is an accountant for Vincentia Office Supplies. Due to her increasing workload, she was given permission to hire a part-time employee to assist with recording the company's financial transactions. What would be the most appropriate title she should use for her job posting?

A) financial analyst
B) bookkeeper
C) managerial accountant
D) account manager
E) recordkeeper

Question 40

Aubrey just graduated and wants to find a job where she can perform audits to ensure the accuracy of financial information. What kind of job would be most appropriate for her?

A) managerial accountant
B) bookkeeper
C) investor
D) financial accountant
E) accounts payable specialist

Question 41

Dax is responsible for preparing financial statements for his employer. Each statement is reviewed against previous statements and against top competitors. Which Generally Accepted Accounting Principle (GAAP) standard does this best demonstrate?

A) relevant
B) factual
C) measurable
D) comparable
E) reliable

Question 42

Hurley has just finished recording the monthly journal entries for VOL Company. It is the end of the quarter and he wants to verify the accuracy of the ledger. Hurley should proceed by

A) preparing a ratio analysis.
B) reviewing the balance sheet.
C) conducting a GAAP analysis.
D) dividing the ledger into accounts.
E) running a trial balance.

Question 43

Thiago is reviewing the books for Spare Bowling Supplies. He notices that the books are not balancing and finds a cash sale that was entered as a $50 debit to cash and a $5 credit to revenue. Based on this information we know that Thiago is most likely using a(n) ________ bookkeeping system.

A) debit-credit
B) double-entry
C) acid-test
D) single-entry
E) cash flow

Question 44

What task would be a part of the first step in the accounting process?

A) recording all single-entry transactions in the ledger
B) completing the acid-test ratio
C) gathering all invoices and receipts
D) preparing a trial balance
E) analyzing the statement of cash flows

Question 45

Coletta is preparing the balance sheet for Zebra Athletics. She is struggling to determine how to classify the stocks her company owns prior to running the statement and asks for your help. You tell her that stocks are classified as

A) a current asset.
B) stakeholders' equity.
C) a long-term liability.
D) a fixed asset.
E) a short-term liability.

Question 46

Tree Down Landscaping recently took out a mortgage for its new vehicle storage facility. When it prepares its balance sheet, the mortgage will be classified as

A) a fixed asset.
B) owner's equity.
C) a short-term liability.
D) an intangible asset.
E) a long-term liability.

Question 47

Upstart Solutions has cash of $25,000, inventory of $50,000, land valued at $100,000, mortgage payable of $90,000, and accounts payable of $5,000. What is the amount of its stockholders' equity?

A) $270,000
B) $80,000
C) $175,000
D) $95,000
E) $90,000

Question 48

Unshakeable Smoothies has an outstanding reputation in the community thanks to its many charitable donations. The company's reputation is an example of ________, a type of ________.

A) a dividend; current liability
B) goodwill; owners' equity
C) goodwill; intangible asset
D) a receivable; tangible asset
E) liquidity; fixed asset

Question 49

Luxury Tapestries had sales of $500,000 and returns and allowances of $50,000. Its cost of goods sold was $200,000 and it had operating expenses of $150,000. Calculate net income for the company.

A) $0
B) $350,000
C) $50,000
D) $100,000
E) $200,000

Question 50

In addition to their salary, FAQ Training provides its sales and marketing team with a budget for advertising and supplies. How would you best classify these expenses on the income statement?

A) administrative
B) selling
C) cost of goods sold
D) gross sales
E) allowance

Question 51

A company had sales revenue of $1,000,000 last year. Its operating expenses were $100,000 and its income tax expense was $10,000. Additionally, the company had $20,000 in sales returns and cost of goods sold of $500,000. What was its gross profit?

A) $400,000
B) $500,000
C) $380,000
D) $370,000
E) $480,000

Question 52

Jasper is preparing an income statement for his business. He calculated his gross profits but in order to determine the company's profit before and after taxes, Jasper needs to

A) determine operating expenses.
B) calculate owners' equity.
C) subtract income tax expenses.
D) add long-term liabilities.
E) adjust for returns and allowances.

Question 53

Moments Photography purchased a new fleet of hybrid vehicles last year. When completing the cash flow statement, an accountant would classify the fleet purchase as

A) operating activities.
B) financing activities.
C) long-term liabilities.
D) investing activities.
E) short-term liabilities.

Question 54

Second Harvest Tractors sold 10,000 shares of new stock last year. How would this be classified on a cash flow statement?

A) financing activities
B) shareholder activities
C) operating activities
D) investing activities
E) fixed activities

Question 55

Cascade Snowboards Shoppe had a cash balance of $10,000 last year. This year it received $500,000 in cash from sales and paid $200,000 for inventory and $130,000 for operating expenses. It also paid $10,000 for new office furniture and $120,000 for new machinery in its warehouse. Lastly, it paid $30,000 towards the mortgage. What is its new cash balance?

A) $50,000
B) $40,000
C) $10,000
D) $20,000
E) $0

Question 56

Dream Ice Cream Company paid $500,000 in salaries last year along with $25,000 in income tax. How would you best classify these expenses if you were preparing its cash flow statement?

A) financing activities
B) shareholders' equity
C) operating activities
D) cash balance
E) investing activities

Question 57

Ersan is participating in a career workshop at the local college. A student asks him how he evaluates the variables in financial statements to provide managers and investors with a better understanding of financial performance. Ersan replies that ________ analysis provides him with four different tools to help with his evaluation.

A) risk
B) ratio
C) GAAP
D) accounting
E) fiscal

Question 58

The four types of financial ratios used in ratio analysis help an accountant to

A) manage annual cash flow.
B) verify current cash balance.
C) account for accrued depreciation.
D) ensure an accurate trial balance.
E) compare performance with similar firms.

Question 59

Massive Discount Emporium has current assets of $250,000, including cash of $50,000, marketable securities of $20,000, and receivables of $50,000. Current liabilities are $125,000 and long-term liabilities are $100,000. Calculate its current ratio.

A) 2.00
B) 1.11
C) .96
D) 2.50
E) 1.64

Question 60

Batteries Emporium has cash on hand of $45,000, along with $15,000 in marketable securities and $30,000 in receivables. Its current liabilities are $90,000. Calculate its acid-test ratio.

A) 1.00
B) .33
C) .17
D) .50
E) 1.50

Question 61

A current ratio of less than 2.0 is a potential red flag for a company because it means that

A) there is a reasonable chance that debt is outpacing equity.
B) sales allowances may be too high.
C) the company may have potential difficulty paying back current debts.
D) the cost of goods sold is likely too high.
E) profitability is not aligned with GAAP guidelines.

Question 62

Standard Brakes had sales of $200,000 last year. It also has a cash total of $75,000, stocks and bonds of $50,000, and accounts receivable of $40,000. Standard has accounts payable of $50,000, notes payable of $125,000, and bonds payable of $175,000. Calculate the quick ratio for the company.

A) .47
B) 1.04
C) 1.22
D) 1.14
E) .94

Question 63

Braylon is the accountant at Full-Grain Wood Flooring. Full-Grain had gross profits of $500,000, sales returns and allowances of $50,000, and cost of goods sold of $300,000. Full-Grain's average value of its inventory is $75,000. What is the inventory turnover ratio for the company?

A) 4.00
B) 3.00
C) 10.00
D) 2.00
E) 6.00

Question 64

Tessa is asked to complete the efficiency ratio for her employer's new product line. Which formula should she use to make this calculation?

A) current assets divided by current liabilities
B) net sales divided by average inventory
C) cost of goods sold divided by average inventory
D) net sales divided by cost of goods sold
E) average inventory divided by accounts receivable

Question 65

Elementary Online Training had net sales of $750,000, sales returns of $10,000, sales allowances of $5,000, and cost of goods sold of $500,000. If its accounts payable is $50,000 and its average inventory value is $75,000, what is its inventory turnover ratio?

A) 3.33
B) 6.67
C) 4.70
D) 10.00
E) 3.13

Question 66

Scales Gym Supply has a very high inventory turnover ratio compared to its competitors. What does this most likely indicate?

A) obsolete inventory
B) efficiency and greater revenue
C) a poor buying strategy
D) inability to pay current debts
E) strong ability to pay dividends

Question 67

Brown Bag Liquor Emporium has short-term liabilities of $150,000 and long-term liabilities of $200,000. With gross profits of $500,000 and owners' equity of $100,000, calculate its debt to owners' equity ratio.

A) 28.57%
B) 15.00%
C) 35.00%
D) 5.83%
E) 7.00%

Question 68

Tamarack Camping Company has a common stock balance of $50,000 and retained earnings of $20,000. It has notes payable of $100,000, current notes payable of $25,000, mortgage payable of $200,000, and accounts payable of $50,000. Using this information, calculate its debt to owners' equity ratio.

A) 53.57%
B) 10.71%
C) 42.86%
D) 60%
E) 75%

Question 69

What ismost likely to happen as a company's debt to owners' equity approaches 100%?

A) It will be easier to service current debts.
B) It will be more difficult to borrow money.
C) It will have more frequent sales of inventory.
D) It will have improved return on investment for owners.
E) It will have a decreased return on sales.

Question 70

Journee Camping Supply Store has net sales of $900,000, cost of goods sold of $550,000, income before taxes of $55,000 and income tax expense of $5,000. What is its return on sales?

A) 9.10%
B) 15.71%
C) 6.11%
D) 5.56%
E) 14.29%

Question 71

The CEO of Trust-T Parts asks his accountant to report on the company's profit margin. Trust-T Parts had sales of $750,000 and returns and allowances of $20,000. Its gross profit was $215,000 and it had operating expenses of $175,000 and income taxes of $5,000. Help the accountant with her calculation.

A) 5.33%
B) 4.67%
C) 5.48%
D) 6.78%
E) 4.79%

Question 72

Get It Company wants to determine how well it is using its assets to generate profits. It knows that its net income for the year was $20,000. It also had $16,000 of cash, $70,000 of inventory, land and buildings valued at $250,000, $50,000 of accounts receivable, and goodwill valued at $20,000. What is Get It Company's return on assets?

A) 5.46%
B) 4.69%
C) 5.18%
D) 4.49%
E) 4.92%

Question 73

Alabaster Enterprises has net income of $35,000, total assets of $300,000, common stock of $50,000, and retained earnings of $25,000. Calculate its return on investment.

A) 50.00%.
B) 57.50%
C) 46.00%
D) 62.50%
E) 50.00%

Question 74

Define double-entry bookkeeping and describe how and why it is used when recording transactions.

Question 75

Phelix is an accounting intern and is preparing a presentation regarding his experience. He has been asked to describe how the accounting equation is used in relation to the balance sheet and to provide examples of each type of data that is found in the balance sheet. What should Phelix use for his presentation?

Question 76

You are an accountant and your supervisor asks you to calculate gross profit for the last quarter. What is gross profit? Define each element you will need for the calculation and describe the formula.

Question 77

Peyton was just promoted into an accounting role and is responsible for completing the annual cash flow statement for McGhee Tractors. He isn't sure what to do. Describe the purpose and importance of the cash flow statement to Peyton. List and define the elements he will need to complete this task.

Question 78

Blakeleigh is an accountant with Salt Lake Higher Education. Her friend is a college professor and asks her to lead a short presentation about the four different types of accounting ratios and what they are used for. The professor is also hoping she can provide an example, including the formula, of each ratio to share with the students.

Question 79

Lenders and suppliers use financial accounting to evaluate credit ratings.

Question 80

Some businesses may legally show prepaid expenses and marketable securities as part of their current assets.