Question 1

How has the Sarbanes-Oxley Act affected accountants?

Accepted Answer

The Sarbanes-Oxley Act has eliminated many nonauditing tasks that accountants used to provide for their customers. This is because the Act requires accountants to focus on their core auditing responsibilities and to avoid conflicts of interest.

Question 2

Assume the net profit for manufacturer of mountain bikes was $1,000,000 last year.The firm paid out $40,000 in dividends and has 200,000 shares of common stock outstanding.Its earnings per share (EPS) was:

Accepted Answer

The answer of Assume the net profit for manufacturer of...

Question 3

Which of the following is NOT really a financial ratio though it is often used to measure a firm's overall liquidity?

Accepted Answer

Net working capital is not a ratio; it is a measure of a company's liquidity calculated as current assets minus current liabilities, indicating the liquidity available to run its operations.

Question 4

Assume a company has inventory valued at $50,000, its total current assets, including this inventory, total $90,000.Its total current liabilities total $20,000.Its quick ratio is:

Accepted Answer

The answer of Assume a company has inventory valued at...

Question 5

Holiday Confections has the following balance sheet figures for the year ending December 31, 2018: Cash $1,000
Marketable securities 5,000
Inventory 3,000
$9,000
Accounts payable $2,000
Notes payable 1,000
$3,000
Its net working capital is:

Accepted Answer

Net working capital is calculated as current assets minus current liabilities. Here, current assets are $9,000 (Cash + Marketable securities + Inventory) and current liabilities are $3,000 (Accounts payable + Notes payable), so the net working capital is $9,000 - $3,000 = $6,000.

Question 6

_____ accounting focuses on preparing the financial reports used by managers and outsiders to track the firm's performance and compare it with other firms.

Accepted Answer

The answer of _____ accounting focuses on preparing the financial...

Question 7

A small company that trains executives on how to act when working in Japan had $70,000 worth of inventory on January 1, 2018, and it had $50,000 worth of inventory on December 31, 2018.If its cost of services provided for that period was $30,000, and its net profit was $90,000, what was its inventory to turnover ratio?

Accepted Answer

The inventory turnover ratio is calculated by dividing the cost of goods sold (COGS) by the average inventory for the period. The average inventory is ($70,000 + $50,000) / 2 = $60,000. The COGS for a service company is equivalent to the cost of services provided, which is $30,000. Therefore, the inventory turnover ratio is $30,000 / $60,000 = 0.5. However, the correct calculation involves understanding that the inventory turnover ratio in the context given seems to be misinterpreted. For a service company, the direct comparison should involve costs related to services provided, but since inventory is mentioned, we'll proceed with a standard approach for inventory turnover which typically involves COGS. Given the lack of direct COGS, we might consider the change in inventory as part of the operational flow, but this leads to confusion without standard COGS. The provided information does not directly lead to a conventional calculation of the inventory turnover ratio as understood in retail or manufacturing contexts, leading to a misunderstanding in the initial explanation. The correct approach to find the inventory turnover ratio involves understanding it as the cost of goods sold (or services provided in this context) over the average inventory. However, without clear COGS, the calculation provided was incorrect, leading to a reevaluation of how to approach this with the given data. The mistake was in the interpretation of how inventory affects a service-based company and the calculation of the turnover ratio without clear COGS, which is not directly provided or accurately represented by the cost of services.

Question 8

The _____ ratio is a measure of the firm's ability to pay its current liabilities once inventory is subtracted from current assets.

Accepted Answer

The acid-test ratio, also known as the quick ratio, measures a company's ability to pay its current liabilities without relying on the sale of inventory, by subtracting inventory from current assets.

Question 9

The ratio of net profit to total owners' equity is called return on:

Accepted Answer

The ratio of net profit to total owners' equity is called return on equity (ROE). This financial ratio indicates how well a company uses the investments from its shareholders to generate profits.

Question 10

The ratio of net profit to the number of shares of common stock outstanding is called the:

Accepted Answer

Earnings per share (EPS) is the financial ratio that divides the net profit of a company by the number of its outstanding shares of common stock, providing a measure of the company's profitability on a per-share basis.

Question 11

The _____ ratio measures the relationship between the amount of debt financing and the amount of equity financing.

Accepted Answer

The debt-to-equity ratio measures the relationship between the amount of debt financing (liabilities) and the amount of equity financing, indicating the balance between debt and equity used by a company to finance its operations.

Question 12

A kennel designed for boarding small dogs has current assets of $8,000, current liabilities of $2,000, and fixed assets of $25,000.The small company has a current ratio of:

Accepted Answer

The current ratio is calculated by dividing current assets by current liabilities. In this case, $8,000 (current assets) / $2,000 (current liabilities) = 4.

Question 13

The Financial Accounting Standards Board (FASB) is currently:

Accepted Answer

The Financial Accounting Standards Board (FASB) is known for its role in developing and improving the Generally Accepted Accounting Principles (GAAP) in the United States. It often pushes for changes and updates in GAAP to ensure that it remains relevant and reflects the current economic environment and the needs of users of financial statements.

Question 14

A company that specializes in planning parties for children had $7,000 worth of inventory on January 1, 2018, and it had $5,000 worth of inventory on December 31, 2018.If its cost of goods sold for that period was $3,000, and its net profit was $9,000, what was its inventory to turnover ratio?

Accepted Answer

The inventory turnover ratio is calculated as the cost of goods sold divided by the average inventory. The average inventory is ($7,000 + $5,000) / 2 = $6,000. The cost of goods sold is $3,000. Therefore, the inventory turnover ratio is $3,000 / $6,000 = 0.5, which means the inventory turned over 2 times during the year.

Question 15

By dividing cost of goods sold by the average inventory to measure the speed with which inventory moves through the firm and is turned into sales, the _____ ratio is calculated.

Accepted Answer

The inventory turnover ratio is calculated by dividing the cost of goods sold by the average inventory. This ratio measures how quickly inventory is sold or turned over in a given period.

Question 16

_____ accounting provides financial information for managers within the firm to manage, budget, and analyze the progress of the firm.

Accepted Answer

The answer of _____ accounting provides financial information for managers...

Question 17

The Art Institute, a school for training artists to be financially self-sufficient, has a debt-to-equity ratio of 120 percent.This means the school has:

Accepted Answer

A debt-to-equity ratio of 120 percent indicates that the school has more debt than equity, as the ratio is above 100 percent, meaning debt exceeds equity.

Question 18

_____ is arrived at by subtracting current liabilities from current assets.

Accepted Answer

Net working capital is calculated by subtracting current liabilities from current assets, providing a measure of a company's short-term liquidity and operational efficiency.

Question 19

The acceptable turnover ratio is:

Accepted Answer

The acceptable turnover ratio varies by industry because different sectors have different norms and expectations for how frequently employees leave or are replaced. For example, high turnover might be common in hospitality but less so in specialized tech fields.

Question 20

_____ ratios measure the degree and effect of the firm's use of borrowed funds to finance its operations.

Accepted Answer

Debt ratios measure the degree to which a company uses borrowed funds to finance its operations, indicating the amount of leverage being used.

Quiz 14: Using Financial Information and Accounting