Question 1

Management's greatest single concern is ________, which is the movement of money through an organization over a daily, weekly, monthly, or yearly basis.
A) expenses trajectory
B) income trajectory
C) accounting flow
D) the budget
E) cash flow

Accepted Answer

Cash flow is the movement of money through an organization over a daily, weekly, monthly, or yearly basis. Obviously, for any business to succeed, it needs to generate enough cash to pay its bills as they fall due.

Question 2

Carlee's Cake Creations hired a managerial accountant to help forecast the company's expenses and income for its first year in business. This plan for how Carlee's Cake Creations plans to move from Point A to Point B over the course of the year is its
A) budget.
B) schedule.
C) agenda.
D) mission.
E) annual report.

Accepted Answer

The plan for how Carlee's Cake Creations is going to move from Point A to Point B over the course of its first year in business is its budget. Managerial accountants help prepare a company's budget, an internal financial plan that forecasts expenses and income over a specific period of time.

Question 3

Terrance is a manager at a bank. He has to decide whether to lend $10,000 to Weed and Prune, a landscaping company. He should
A) approve the loan application without checking the company's credibility.
B) review the company's financial statements.
C) prepare an organizational budget.
D) report the organization's financial performance to outsiders.
E) turn down the loan application.

Accepted Answer

Terrance should review the company's financial statements. Banks and other lenders look at financial statements to determine a company's ability to meet current and future debt obligations if a loan or credit is granted. To determine this ability, a short-term lender examines a firm's cash flow to assess its ability to repay a loan quickly with cash generated from sales.

Question 4

Qingyi works for a large technology company as an engineer. As an employee, why should he look at his company's financial statements?
A) to ensure that his job is secure
B) to see what his co-workers are making
C) to get a sense of how competitive companies pay their employees
D) to determine if his company needs his help to succeed
E) to establish reasonable expectations for salary and other benefit requests

Accepted Answer

As an employee, Qingyi should use his company's financial statements to establish reasonable expectations for salary and other benefit requests. Just as firms experiencing record profits are likely to face added pressure to increase employee wages, so too are employees unlikely to grant employers wage and benefit concessions without considerable evidence of financial distress.

Question 5

Make It Your Own, 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
A) equity.
B) liabilities.
C) assets.
D) profits.
E) features.

Accepted Answer

These items are the company's assets, which are its economic resources, or items of value that it owns. Assets include cash, inventory, land, equipment, buildings, and other tangible and intangible things.

Question 6

Ivan got a loan from a bank to start his own house contracting business. This loan is a(n)
A) asset.
B) benefit.
C) expense.
D) transaction.
E) liability.

Accepted Answer

This loan is a liability, or a debt the firm owes to someone else.

Question 7

When Hunter opened his fish and tackle 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 Hunter's store comprise his
A) owners' equity.
B) assets.
C) liabilities.
D) stock.
E) bonds.

Accepted Answer

This scenario describes Hunter's owners' equity, which is all the money that has ever been contributed to the company that never has to be paid back. The funds can come from investors who have given money or assets to the company, or it can come from past profitable operations.

Question 8

Carl 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 Carl EXCEPT
A) supplier credit.
B) cash.
C) tools.
D) inventory.
E) equipment.

Accepted Answer

Carl's specific asset categories could include cash, inventory, equipment, and tools, while supplier credit would be a liability.

Question 9

Peeta 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 Peeta do at the end of the accounting period?
A) She must check her journal for mistakes.
B) She must prepare a trial balance.
C) She must recheck all her source documents.
D) She must attest that she used generally accepted accounting principles.
E) She must throw away her ledger and start over.

Accepted Answer

At the end of the accounting period, Peeta must prepare a trial balance, a summary of the balances of all the accounts in the general ledger. If, upon totaling, the trial balance doesn't balance, Peeta or her accountant must look for mistakes and correct them. If the trial balance is correct, the accountant can then begin to prepare the financial statements.

Question 10

Which statement is TRUE regarding financial statements?
A) All financial statements follow precisely the same format.
B) There is an international set of rules that businesses must follow when preparing financial statements.
C) All industries use the same generally accepted accounting principles to develop financial statements.
D) Different types of organizations use different sets of accounting principles agreed upon by the public accounting profession.
E) There is a template businesses are required to use when preparing financial statements.

Accepted Answer

It is important to recognize that not all financial statements follow precisely the same format. The fact that different organizations generate income in different ways suggests that when it comes to financial statements, one size definitely does not fit all. Manufacturing firms, service providers, and nonprofit organizations each use a different set of accounting principles or rules upon which the public accounting profession has agreed.

Question 11

Barat owns a large chain of Indian markets. 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.
A) gross
B) profit
C) service
D) net
E) operating

Accepted Answer

This scenario describes net income, which is the amount of income left after taxes. The firm may decide to retain all or a portion of the income for reinvestment in new assets. Whatever it decides not to keep it will usually pay out in dividends to its stockholders.

Question 12

Sheila owns a childcare business. 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.
A) selling
B) general
C) development
D) interest
E) administrative

Accepted Answer

These expenses would be classified as selling expenses, which include advertising and sales salaries.

Question 13

Lucy 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.
A) interest
B) selling
C) general and administrative
D) research and development
E) depreciation

Accepted Answer

Lucy's direct costs of borrowing money are her interest expenses.

Question 14

Reliable Construction Company bought a backhoe for $100,000, which it expects to be able to use for 20 years. Rather than showing an expense of $100,000 in the first year and no expense for the crane over the next 19 years, the company can report depreciation expenses of ________ per year in each of the next 20 years because that better matches the cost of the machine to the years it is used.
A) $500
B) $100,000
C) $10,000
D) $50,000
E) $5,000

Accepted Answer

The company's depreciation expenses would be $5,000 per year because $100,000 divided by 20 years equals $5,000.

Question 15

When a piece of equipment is fully depreciated, it
A) has a zero value on the firm's balance sheet.
B) needs to be auctioned off.
C) can no longer be used.
D) is economically worthless.
E) will still appear on the firm's balance sheet with a required minimum amount.

Accepted Answer

When a piece of equipment is fully depreciated, it has a zero value on the firm's balance sheet. This does not necessarily mean that it can no longer be used or is economically worthless. In some industries, machines used every day have been reported as having no book value whatsoever for more than 30 years.

Question 16

If a company decides to pay dividends to its shareholders, it will decrease
A) its revenue and expense accounts.
B) its checking and savings accounts.
C) its cash and capital accounts.
D) its liabilities and equity accounts.
E) its assets and stock accounts.

Accepted Answer

When a company pays dividends to its shareholders out of its net earnings, it decreases its cash account (in the assets category of the balance sheet) as well as its capital account (in the owners' equity category of the balance sheet).

Question 17

Janice 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
A) competitive value.
B) perceived market value.
C) present values minus accumulated depreciation.
D) present values.
E) original cost minus accumulated depreciation.

Accepted Answer

Following long-established traditions, Janice should list items on her balance sheet on the basis of their original cost less accumulated depreciation, rather than their present values.

Question 18

The traditional balance sheet format placed assets on the left side with liabilities and equities on the right, but more recently a ________ format has gained wide acceptance.
A) horizontal
B) vertical
C) diagonal
D) revised
E) modern

Accepted Answer

Balance sheets are often presented in two different formats. The traditional balance sheet format placed the organizations assets on the left side and its liabilities and owners' equity on the right. More recently, a vertical format, with assets at the top followed by liabilities and owners' equity, has gained wide acceptance.

Question 19

Camila 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
A) current assets.
B) net receivables.
C) temporary investments.
D) inventory payments.
E) gross receivables.

Accepted Answer

Accounts receivable usually includes an allowance for bad debts that management does not expect to collect. The bad-debts adjustment is normally based on historical collections experience and is deducted from the accounts receivable balance to represent a more realistic view of the payments likely to be received in the future, called net receivables.

Question 20

What represents a commitment of organizational funds of at least one year?
A) current assets
B) fixed assets
C) temporary investments
D) inventory
E) accounts receivable

Accepted Answer

Long-term or fixed assets represent a commitment of organizational funds of at least one year. Items classified as fixed include long-term investments, such as plants and equipment, and intangible assets, such as corporate "goodwill,"
or reputation, as well as patents and trademarks.

Quiz 14: Accounting and Financial Statements

Management's greatest single concern is ________, which is the movement of money through an organization over a daily, weekly, monthly, or yearly basis.

Carlee's Cake Creations hired a managerial accountant to help forecast the company's expenses and income for its first year in business. This plan for how Carlee's Cake Creations plans to move from Point A to Point B over the course of the year is its

Terrance is a manager at a bank. He has to decide whether to lend $10,000 to Weed and Prune, a landscaping company. He should

Qingyi works for a large technology company as an engineer. As an employee, why should he look at his company's financial statements?

Make It Your Own, 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

Ivan got a loan from a bank to start his own house contracting business. This loan is a(n)

When Hunter opened his fish and tackle 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 Hunter's store comprise his

Carl 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 Carl EXCEPT

Which statement is TRUE regarding financial statements?

Barat owns a large chain of Indian markets. 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.

Lucy 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.

When a piece of equipment is fully depreciated, it

If a company decides to pay dividends to its shareholders, it will decrease

Janice 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

The traditional balance sheet format placed assets on the left side with liabilities and equities on the right, but more recently a ________ format has gained wide acceptance.

What represents a commitment of organizational funds of at least one year?