1. In your own words, describe the relationship between information and risk and how this relationship could impact
the business decision–making process.
2. How might the information needs of a marketing manager differ from those of an operations manager?
3. Describe each of the five functions of a management information system.
4. Explain why a firm’s financial statements should be audited.
5. In what ways does the Sarbanes-Oxley Act improve the validity of the information provided by a firm’s accounting
system?
6. What are the differences between managerial accounting and financial accounting? From a career standpoint,
which type do you prefer and why?
7. Write the accounting equation. Then define each term.
8. Define a balance sheet (also called a statement of financial position). What does it balance?
9. Why are current assets listed before fixed assets on the balance sheet?
10. How would it be easier to determine if a firm made or lost money last year—by looking at the balance sheet or by
looking at the income statement? Support your answer by explaining in general terms what accounts a balance
sheet lists and what accounts an income statement lists.
11. Describe the three activities of a statement of cash flows. Where does each section fall on the statement and what
does it account for?
12. Today corporations are required to send their stockholders an annual report. Assume that you are a prospective
investor trying to decide if you should invest in a specific corporation. What type of information is contained in an
annual report that would help you decide if this is the right investment for you?
13. What is inventory turnover and how is it calculated? Why is it important for a manager to track this ratio?
14. What ratio is used to measure a firm’s ability to pay its current liabilities and what does this ratio tell a manager?
How can a low ratio be improved?
15. Refer to Ridgley, Cooper, and Ross. Which of the following represents a key component of the Sarbanes-Oxley
Act relating to consulting services?
a. A public corporation must change its lead consulting firm every five years.
b. Accounting firms are prohibited from providing many types of consulting services to the companies they
audit.
c. Accounting firms who report violations of the Sarbanes-Oxley Act must be banned from consulting for five
years.
d. The SEC is required to establish a full-time five-member federal oversight board that will police the
consulting industry.
e. Consultants must maintain financial documents and audit work papers for fifteen years.
16. Refer to Ridgley, Cooper, and Ross. What does GAAP stand for?
a. Generally accepted accounting principles
b. Generally accepted auditing principles
c. Generalized accounting and auditing principles
d. Generic accounting alternative practices
e. General administrative accounting practices
17. Refer to Ridgley, Cooper, and Ross. One of RCR’s clients is ABC Electronics. RCR develops ABC Electronics’
statements and reports for ABC’s stockholders, financial analysts, and bankers. These services can be classified as
which of the following?
a. Non-accounting services
b. Tax accounting
c. Financial accounting
d. Managerial accounting
e. Cost accounting
18. Refer to Ridgley, Cooper, and Ross. In order to be successful in the accounting industry, RCR employees must
a. know all areas of accounting and marketing.
b. have complete human resources training.
c. be able to communicate in multiple languages.
d. know how to do accounting the old fashioned way–using the manual, double-entry system.
e. have a strong background in financial management.
19. Refer to Ridgley, Cooper, and Ross. If you applied for a job at RCR and were asked to state the accounting
equation, which of these would you state?
a. Assets = liabilities − owners‘ equity
b. Assets + liabilities = owners’ equity
c. Assets ÷ liabilities = owners’ equity
d. Assets = liabilities + owners’ equity
e. Assets = liabilities × owners’ equity
Christine’s First Job
Christine has just earned her undergraduate degree in accounting and has successfully completed the CPA exam.
She recently interviewed with a relatively small and new company and was offered a job. The offer sounded very
promising; the job had opportunities to grow with the company and provided diverse challenges. Christine accepted
the job.
Once Christine started working, she realized that the owners and employees did not have a general understanding
of accounting. She had to teach them the steps in an accounting cycle so they would be able to understand how she
was going to create reports. When she talked about the statement of financial position, they had no idea what she
was talking about. She was the qualified individual responsible for accounting. No one else working with her had
much knowledge. They did not even know the different financial ratios that someone could use to understand the
financial standing of a company. Christine knows it will be a challenge to keep everyone on the same page when it
comes to numbers and reports.
20. Refer to Christine’s First Job. If the owners did not recognize the term “statement of financial position,” Christine
could use which of the following more common terms?
a. income statement
b. balance sheet
c. statement of cash flow
d. statement of retained earnings
e. statement of financial ratios
21. Refer to Christine’s First Job. When Christine explained the asset side of the statement, she included which of the
following?
a. Retained earnings
b. Notes payable
c. Merchandise inventory
d. Long–term liabilities
e. Stockholders’ equity
22. Refer to Christine’s First Job. To help the owners understand how effectively the firm is transforming sales into
profits, Christine should address which of the following ratios?
a. Return on sales
b. Earnings per share
c. Acid-test ratio
d. Return of owners‘ equity
e. Inventory turnover
23. Numerical or verbal descriptions that usually result from measurements of some sort are known as
a. information.
b. statistics.
c. software.
d. assets.
e. data.
24. Which of the following statements is true?
a. The more information a manager has, the more risk there is when making a decision.
b. The more information a manager has, the less risk there is when making a decision.
c. Risk improves decision making.
d. Most managers make decisions without any information.
e. When the amount of information is low, there is less risk.
25. Mary Nettles works for a marketing and advertising firm. She must choose one ad piece from a number of potential
ad pieces. To ensure that she makes the right decision, she should
a. put a brief description of each ad piece in a hat and draw one.
b. ignore any feedback that she gets from coworkers and consumers and make the decision herself.
c. gather information from coworkers and consumers on their reaction to the different ad pieces.
d. let her supervisor choose the ad piece.
e. discard all ad pieces and develop a new advertising campaign.
26. The purpose of is to distribute timely and useful information from both internal and external sources to the
decision makers who need it.
a. a manager awareness program
b. a management information system
c. entrepreneurial information software
d. a computer information program
e. a desktop information system
27. The specific types of information that managers need depend on their area of management and on their
a. level within the firm.
b. understanding of data.
c. background in computer science.
d. use of the information.
e. accounting background.
28. Operations managers need management information in all of the following areas except
a. the cost of production.
b. current inventory levels.
c. availability of resources.
d. future capitalization needs.
e. present and future sales levels.
29. Which type of manager would be most concerned with information about the products offered by competitors?
a. Financial b.
Marketing c.
Operations
d. Administrative
e. Human resources
30. Most data gathered for an MIS come from
a. customers.
b. bankers.
c. external sources.
d. internal sources.
e. information obtained from data firms.
31. The purpose of an audit is to ensure that financial statements have been prepared according to
a. the particular company’s standards.
b. the industry’s standards.
c. generally accepted accounting principles.
d. international accounting standards.
e. the standards of certified public accountants.
32. Which of the following statements about the Sarbanes-Oxley Act is incorrect?
a. The act was passed in 1996.
b. Because the act is complex, compliance is more expensive and time consuming for corporate management.
c. Because of the act, the SEC was required to establish a federal oversight board.
d. Because of the act, a corporation’s chief executive and financial officers must certify financial reports.
e. The act strengthened the penalty for destroying financial documents related to an audit.
33. Because of the Sarbanes-Oxley Act, accountants must maintain financial documents and audit work for
a. six months.
b. one year.
c. three years.
d. five years.
e. ten years.
34. When Nathan applied for a loan to expand his sailboat business, the bank required that his financial statements be
carefully examined by a CPA. The bank is requiring Nathan to have his financial statements
a. verified.
b. audited.
c. affirmed.
d. certified.
e. insured.
35. A public corporation must change its lead auditing firm
a. every year.
b. every two years.
c. every five years.
d. every ten years.
e. whenever it wants to.
36. Ebony Jones is hired by Ruby Tuesday to help with budgeting, determining the costs of the firm’s meal services,
and recording transactions and creating financial statements. Ebony is a
a. private accountant.
b. budget manager.
c. public accountant.
d. clerk.
e. public auditor.
37. The information provided by managerial accounting is of most benefit to a firm‘s
a. investors.
b. creditors.
c. managers.
d. lenders.
e. bankers.
38. Jane Cook started a small manufacturing firm two years ago. Now, after two years, she decides it is time to hire an
accountant to work in the office and process all her financial data. This accountant will be a
a. certified auditor.
b. certified bookkeeper.
c. managerial bookkeeping clerk.
d. private accountant.
e. public accountant.
39. Regina owns and operates her own bakery and coffee shop. Regina has no accounting training and has only three
employees. How does she most likely handle the necessary accounting for her business?
a. She does it herself because it takes little training or knowledge.
b. She hires a private accountant to work for her and take care of the accounting functions.
c. She has one of her part-time chefs do the accounting when he has time.
d. She pays a public accountant to do the accounting for her business.
e. She does nothing at all, because accounting is not necessary for businesses.
40. Victor Cooper spent five years in an accounting educational program and successfully completed a rigorous
accounting examination five years ago. Since then, he has worked for several accounting firms. Currently he is a
senior partner in a huge international accounting firm. By profession, Victor is probably a
a. bookkeeper.
b. certified public accountant.
c. marketing manager.
d. vice president of finance.
e. private accountant.
41. An airplane that FedEx owns and uses to deliver packages is a(n) of FedEx.
a. liability
b. asset
c. owners’ equity
d. expense
e. revenue