194. (p. 473) One way to make ratio analysis more meaningful is to compare the ratios of one firm to those of
other firms in the same industry.
195. (p. 474) A debt to owners’ equity ratio of 25% indicates that a firm has more debt than equity.
196. (p. 475) The basic earnings per share and the diluted earnings per share would have quite different values for
a firm that relied heavily on preferred stock and convertible debt securities to acquire funds.
197. (p. 476) A lower than average inventory turnover ratio indicates excellent inventory management practices.
198. (p. 475) Stockholders of a company in a risky market environment would expect lower return on equity ratio
than stockholders in a less risky market.
199. (p. 476) It is always better for a firm to have a high inventory turnover ratio than a low turnover ratio.
200. (p. 456) One difference between accounting and other business functions, such as marketing and
management, is that:
D. accounting deals exclusively with numbers.
201. (p. 456) To effectively run a business, it is necessary to:
A. hire a full-time accountant.
202. (p. 456) Which of the following is an example of a financial transaction?
D. A manager reviews the financial statements prepared by an accountant.
203. (p. 456) A major purpose of all of accounting is to:
D. compute the profit or loss of a business firm.
204. (p. 456-457) Accounting information about a firm is useful:
A. only to managers within the firm.
205. (p. 456) Accounting includes _________ information related to financial transactions.
D. distributing
206. (p. 456-457) The reports and financial statements prepared by accountants:
A. are much more useful for profit-seeking businesses than they are for not-for-profit organizations.
207. (p. 456, figure 17.1) Which of the following is an area of importance in accounting?
D. setting prices for goods and services sold by the organization
208. (p. 456, figure 17.1) As an accountant, Joe Billings would most likely be involved in:
A. developing plans to help his company establish a supply chain.
209. (p. 456) A person’s pulse rate and blood pressure are indicators of a person’s health. Similarly, _________ can
reveal the health of a business.
D. databases
210. (p. 456) Accounting transactions are very important to a firm’s operations. Which of the following activities
would affect account balances?
C. understanding economic reports
D. forecasting consumer demand
211. (p. 456) Jill wants to start her own business, but knows little about how to set up an accounting system or
interpret financial information. “I’m not worried about accounting,” she tells her friends. “I’ll just hire a
part-time bookkeeper to handle all that type of stuff, and focus my attention on what I like—finding ways to
satisfy my customers.” Which of the following is the best response to Jill’s comments?
D. You have a good plan. Only managers of large firms require a knowledge of accounting. Owners and
managers of small businesses can easily get by with just a part-time bookkeeper.
212. (p. 457) The accounting profession is divided into 5 key working areas, two of which are:
D. income accounting and expenditure accounting.
213. (p. 457) The area of accounting that provides managers of an organization with information they need to
make decisions is called:
C. informational accounting.
D. financial accounting.
214. (p. 457-458) The preparation of financial statements for people outside the firm (creditors, unions, suppliers,
and others) is the goal of:
D. cost accounting.
215. (p. 458) A(n) __________ provides accounting services to individuals or firms on a fee basis.
A. contract accountant
216. (p. 458) An accountant who works for a single business or government agency is referred to as a:
D. commission accountant.
217. (p. 459) __________ involves the review and evaluation of the records that are used to prepare the
organization’s financial statements.
D. Certified bookkeeping
218. (p. 458) A(n) _________ is a yearly statement of the financial condition, progress and expectations of an
organization.
A. balance sheet
219. (p. 460) A(n) ___________ is an evaluation and unbiased opinion of the accuracy of a firm’s financial
statements.
A. internal audit
220. (p. 460) The individuals in a firm that are responsible for the development of strategies to minimize taxes are
called:
D. certified internal auditors.
221. (p. 460) The accounting scandals of the early 2000s led many people to question the legitimacy of:
A. ratio analysis as a means of evaluating the performance of a firm.
222. (p. 460-461) The __________ sets accounting standards used in government accounting.
D. Federal Reserve Board
223. (p. 457) Leondra works for a textbook publishing firm preparing budgets and reporting production costs. She
works in the field of:
D. auditing.
224. (p. 458) For the last several years Bill Havers has gone to accountant Chelsea Jones for help in preparing his
personal income tax forms. He heard about Chelsea from his boss, who said she had done a good job helping
the business design a new accounting system. Bill has been happy with Chelsea’s work and feels that the fees
she charges are quite reasonable. Chelsea would be classified as a(n):
A. independent auditor.
225. (p. 457) As U.S. firms focus on cost cutting in order to stay competitive with producers in low-wage
countries, __________ will gain importance.
D. auditing
226. (p. 460) Taylor Casual, a chain of retail clothing stores, wants to assure investors and other outsiders that its
financial statements are accurate. One way to do so would be to hire a public accounting firm to:
227. (p. 460-461) Which of the following agencies would have the greatest impact on the methods used to record,
classify, summarize, and interpret accounting information for Department of Transportation for the state of
Kentucky?
D. Institute for Public Sector Accounting Standards
228. (p. 457-458) Kelley has applied for a business loan for her firm, Kelley’s Kloset. Her banker has requested
information concerning the financial condition of her business. The development of this type of information
would be part of:
D. certified bookkeeping.
229. (p. 460) Stockholders of the Sasha Deal Company are concerned about irregularities in the firm’s accounting
system. One approach to identify problems in the records of the company would be to have a(n) ________
performed.
D. GAAP analysis
230. (p. 459, Dealing with Change box) According to the boxed material in the “Dealing with Change” box in Chapter 17,
you would be most likely to ask for the help of a forensic accountant if you:
D. wanted to determine the best depreciation and inventory valuation methods to use to minimize the income
taxes paid by your organization.
231. (p. 458) Jose just graduated from college with a bachelor’s degree in accounting. He plans to go to work for
the American Cancer Society as an accountant. Jose will be a(n):
D. independent accountant.
232. (p. 457-458) Becky Hunter is an accountant employed by FAF Enterprises. Recently she has spent much of her
time working on some measures of costs for the production department and checking to ensure that various
departments are staying within their budgets. Becky is a:
A. public accountant whose work is mainly concerned with auditing.
233. (p. 457-458) A basic difference between managerial accounting and financial accounting is that managerial
accounting:
A. adheres to rules set by the GASB, while financial accounting uses a different group of rules set by the FASB.
234. (p. 461) _________ involves the recording of business transactions.
D. Economics
235. (p. 462) __________ is the accounting practice of recording every transaction in two places.
D. Entry duplication
236. (p. 462) The specialized accounting book in which information from journals is accumulated into specific
categories is called a:
A. journal.
237. (p. 461) A bookkeeper’s first task is to:
D. interpret and report data to the firm’s management.
238. (p. 461) Bookkeepers would normally be involved with:
A. interpreting accounting data.
239. (p. 461) The accounting book or computer program where each day’s transactions are first recorded is called
a(n):
A. posting workbook.
240. (p. 462) A _________ summarizes all the data in the account ledgers to verify that they balance.
A. ledger statement
241. (p. 462) The purpose of a trial balance is to:
C. review the income statement accounts.
D. meet a reporting requirement of the Securities and Exchange Commission (SEC).
242. (p. 461, figure 17.4) The __________ is a six-step procedure that results in the preparation and analysis of the
major financial statements.
A. double-entry method
243. (p. 461, figure 17.4) Once a trial balance has been prepared, the next step of the accounting cycle involves:
A. posting the information to the correct ledger accounts.
244. (p. 461, figure 17.4) One of the major financial statements prepared in the fifth step of the accounting cycle is
the:
D. social audit.
245. (p. 461, figure 17.4) The sixth step in the accounting cycle involves:
A. performing a trial balance to verify that the accounting statements are internally consistent.
246. (p. 462) Careful consideration of the use of computers in accounting indicates that computers:
D. have a very limited use in accounting due to inadequate privacy controls.
247. (p. 462) Today’s computerized accounting programs are:
D. so sophisticated that they can make most financial decisions without the aid of an accountant.
248. (p. 462) Accountants not only provide financial information to the firm, they:
A. replace the firm’s need for managers.
249. (p. 461) A comparison of bookkeeping and accounting indicates that:
D. accounting is a subsystem of the process of bookkeeping.
250. (p. 461) Sales receipts, purchase orders, and payroll records are all examples of accounting transactions that
would be recorded by a(n):
A. auditor.
251. (p. 462) This morning Evelyn will be transferring information in her company’s journals and posting them to
the:
A. income statement.
252. (p. 461, figure 17.4) Which of the following is a step in the accounting cycle?
D. preparing the advertising message
253. (p. 462) The main reason an accountant would conduct a trial balance is to:
D. verify the validity of last year’s balance sheet before beginning the next accounting cycle.
254. (p. 462) Hap owns and operates a small business with only four full-time employees and less than $500,000
in annual sales. He currently uses a manual accounting system and relies on a part-time bookkeeper to keep his
records in order. In evaluating the possible adoption of a computerized accounting system, Hap will probably
discover that:
A. the expense of setting up a computerized accounting system would be beyond his financial ability at this
255. (p. 462) The use of computers in accounting has:
A. made it possible for most firms to operate without the expense of hiring or consulting with accountants.
256. (p. 461) Brianna is a bookkeeper for Kitty Creations Limited. Part of her job is to take the firm’s transactions
and record them in books or computer programs referred to as:
A. credit accounts.
257. (p. 461, figure 17.4) Jim works in the accounting department at the Kansas Sunflower Corporation, where it is his
job to record all transactions into journals. After completing this task, the next step in the accounting process is
to:
D. balance the difference between assets and liabilities.
258. (p. 462) April works in the accounting department at Henson’s Tire & Auto. She is concerned that the
company has been placing too many orders for office supplies and wants to look at all of the transactions
involving the purchase of office supplies for the past several months. April could find such information by
looking at the supplies account in the:
D. account debit book.
259. (p. 461) Perry is responsible for recording all sales transactions that take place at Turncoat Enterprises. He
must be careful that his recording is both accurate and thorough. Perry’s work involves tasks associated with :
A. auditing.
260. (p. 462) Heather works in the accounting department of Colorado Manufacturing. Today she will summarize
all the information that has been posted over the most recent period in the firm’s ledger. She wants to see if the
accounts are balanced as required by the double-entry method of bookkeeping. Heather will do this by
preparing a(n):
A. account analysis.
261. (p. 461, figure 17.4) Horst works as an accountant for a mid-sized retail store. He has just completed a trial
balance that turned up no unexpected problems. Horst’s next major task is likely to be:
A. conducting the full audit.