122. If you are taking a common sense approach to evaluating a firm’s accounting information, which of the following
would not be something that you would hope to see?
a. Financial statements audited by an outside source
b. Remembering that a balance sheet is only a snapshot in time
c. Paying great attention to current profit and not worrying about the future
d. Strategies to reduce operating expenses
e. How the company manages its cash flow
123. If you wanted to evaluate the financial condition of Target Stores, a leading discount chain, you would most likely
compare its financial ratios to ratios.
a. Walmart’s
b. JCPenney’s
c. General Electric’s
d. small retailer industry‘s average
e. Target in future years
124. Commonly used in accounting analysis, a
statements.
a. statistic
b. comparative number
c. current ratio
d. financial ratio
e. formula
shows a relationship between two elements of a firm‘s financial
125. The ratio obtained by dividing net income after taxes by net sales is the
a. return on sales ratio.
b. acid-test ratio.
c. return on equity ratio.
d. earnings per share.
e. working capital.
126. The current ratio is calculated by dividing
a. current assets by owners’ equity.
b. current assets by current liabilities.
c. income by operating expenses.
d. net sales after taxes by net sales.
e. accounts receivable by inventory turnover.
127. As the accountant for Marston Retail Stores, you must calculate the current ratio for the firm‘s last accounting
period. The firm’s current assets were $120,000, its fixed assets were $240,000, its current liabilities were $80,000,
and its long-term liabilities were $60,000. Given these facts, what is the firm’s current ratio?
a. 1
b. 1.5
c. 2
d. 3
e. 4
128. The ratio that averages about 2.0 for all industries is the
a. inventory turnover.
b. acid-test ratio.
c. current ratio.
d. debt-to-assets ratio.
e. debt-to–equity ratio.
129. The cost of goods sold divided by the average inventory equals the
a. gross profit on operations.
b. beginning inventory value.
c. merchandise inventory.
d. ending inventory value.
e. inventory turnover.
130. The number of times a firm sells and replaces its merchandise inventory in one year is known as its
a. cost of goods sold.
b. gross profit on operations.
c. inventory turnover.
d. accounts receivable turnover.
e. net purchases.
131. The cost of goods sold for McPherson Fashions is $360,000. The beginning inventory for the firm was $20,000.
Twelve months later the ending inventory was $40,000. What is the firm’s inventory turnover?
a. 6 times a year
b. 9 times a year
c. 12 times a year
d. 18 times a year
e. 24 times a year
132. Because information rules must be checked out before a decision can be made, they lengthen the time required to
analyze choices.
a. True
b. False
133. Data are always in numerical form.
a. True
b. False
134. Knowledge management is a firm’s procedures for using computer software to solve business problems.
a. True
b. False
135. A firm’s MIS data bank should include all past and current data that may be useful in managing the firm.
a. True
b. False
136. Typically, the majority of the data gathered for an MIS come from external sources.
a. True
b. False
137. Audited financial statements guarantee that a firm has not “cooked” the books.
a. True
b. False
138. Without the audit function and GAAP, there would be very little oversight or supervision of corporate accounting
practices.
a. True
b. False
139. Multinational corporations do not have the responsibility nor the incentive to follow international accounting
standards as there still is no particular set of global standards that are generally accepted worldwide.
a. True
b. False
140. According to the Sarbanes-Oxley Act, the FTC is required to establish a full-time, five-member federal oversight
board that will police the accounting industry.
a. True
b. False
141. Individuals or organizations outside of a company will never have the need or desire to view information on another
company’s finances.
a. True
b. False
142. Management and employees are the groups that would be most likely to evaluate the risk associated with investing
in a company’s stocks, bonds, or securities.
a. True
b. False
143. There is added protection for whistle-blowers who report violations of the Sarbanes-Oxley Act.
a. True
b. False
144. While chief executives and financial officers are currently not subject to criminal penalties, they are required to
certify periodic financial reports.
a. True
b. False
145. Managerial accounting generates financial statements and reports for interested people outside an organization.
a. True
b. False
146. A private accountant is an accountant whose services may be hired on a fee basis by individuals or business firms.
a. True
b. False
147. A public accountant works on a fee basis for clients.
a. True
b. False
148. A person who wishes to practice accounting as a CPA must pass an exam prepared by the American Institute of
Certified Public Accountants (AICPA).
a. True
b. False
149. Resources that a firm owns are classified as assets.
a. True
b. False
150. According to the accounting equation, cash, inventory, equipment, and real estate are classified as owners’ equity.
a. True
b. False
151. The debts of a business are called its liabilities.
a. True
b. False
152. Owners’ equity is the dollar value that remains after the total liabilities of a business are subtracted from its total
assets.
a. True
b. False
153. The standard form of the accounting equation is assets equal liabilities minus owners’ equity.
a. True
b. False
154. The statement of financial position is also known as the balance sheet.
a. True
b. False
155. On a balance sheet, assets are listed in order, from the most liquid to the least liquid.
a. True
b. False
156. Current assets are assets that can be converted quickly into cash or that will be used in two years or less.
a. True
b. False
157. Equipment and patents are known as intangible assets.
a. True
b. False
158. Debts that will be repaid in one year or less are known as current liabilities.
a. True
b. False
159. Long-term liabilities need not be repaid for at least one year.
a. True
b. False
160. For a corporation, the owners‘ equity amount is the total value of stock minus the retained earnings that have
accumulated to date.
a. True
b. False
161. The statement of financial position presents the business firm’s assets, liabilities, and owners’ equity accounts at the
end of an accounting period, such as on December 31, whereas the income statement summarizes operations
during a specified accounting period.
a. True
b. False
162. The total dollar amount of all goods and services sold during the accounting period is called net sales.
a. True
b. False
163. The cost of goods sold equals beginning inventory plus net purchases minus ending inventory.
a. True
b. False
164. Net income is the profit earned (or the loss suffered) by a firm during an accounting period after the cost of goods
sold and all expenses have been deducted from revenues.
a. True
b. False
165. In 1987, the Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board (FASB)
required all publicly traded companies to include a statement of cash flows along with the balance sheet and income
statement in their annual report.
a. True
b. False
166. The statement of cash flows illustrates the effects on cash of the operating, investing, and financing activities of a
company for an accounting period.
a. True
b. False
167. The ending cash balance reported on the statement of cash flows is the same as the net sales amount reported on
the firm‘s income statement.
a. True
b. False
168. Managers often compare financial and accounting data with previous accounting periods and with competing firms.
a. True
b. False
169. When smart investors take a practical approach to evaluating a company’s accounting information, they need only
look at the snapshot data that a balance sheet offers as it will be the primary tool to guide potentially profitable
investments.
a. True
b. False
170. An accountant can calculate a return on sales ratio to determine how well the firm is using the money invested by
the owners.
a. True
b. False
171. The return on sales ratio indicates how effectively a firm is transforming its sales into profits.
a. True
b. False
172. Dividing current assets by current liabilities gives the current ratio.
a. True
b. False
173. A low inventory turnover can be improved by ordering merchandise in smaller quantities at more frequent intervals.
a. True
b. False