349. Marshall McBride inherited $10,000 from his Great Aunt Martha. He invested $5,000 in a
new, risky start-up venture, 10th Generation, Inc., and the other $5,000 in Major Chemicals, Inc., a
well-known chemical company that’s been around for years. Today, his financial planner called to
inform him that the Return on equity on 10th Generation = 6.28%; and, Return on equity on Major
Chemicals = 10.50%. Which of the following facts is important information for Marshall McBride?
350. Allison Robards is the owner of Backstreet Books, a small eclectic–style bookstore in a
bustling college town. Allison prides herself in selecting hard to find books and magazines that
her clientele enjoy. Recently, Allison is experiencing a cash flow shortage, and she is concerned
that she may be purchasing too many copies of each title. Having recently completed a business
class, you suggest to Allison that she calculate the ______________ ratio for her store, and then
compare it to other stores in her industry.
351. We would expect the inventory turnover ratio for a ski shop to be _______ than the
turnover for a convenience store.
Mini-Case
Minnie A. Wright-Hoff works as an accountant for Double Entry Doors, Inc. Her company sells
and installs oversized garage doors needed by large vehicles. Most of Minnie’s work involves
helping department heads and other decision makers by measuring and reporting costs for their
departments, and by identifying areas where departments are exceeding their budgets. However,
as one of only three accountants employed by Double Entry Doors, Minnie is something of a “jill–
of-all-trades” in terms of her accounting assignments. For example, she recently spent several
hours summarizing all of the financial data in account ledgers to see if the information was
correct and balanced. Her efforts revealed no problems, so she is now ready to start working on
the firm’s financial statements. Minnie is interested in this part of the accounting cycle because
she likes to be one of the first to know the “bottom line” her company will report. She knows that
she and the other accountants who work on these statements can influence the results by the
choices they make about the way they report certain items.
352. The fact that Minnie spends most of her time measuring costs and checking to see if
departments are staying within their budgets suggests that she is often involved in:
353. The last major task Minnie completed before getting ready to prepare the firm’s financial
statements was the preparation of the:
354. The fact that Minnie wants to determine the “bottom line” for Double Entry Doors means
that she is particularly interested in preparing her firm’s:
355. Double Entry Door’s suppliers maintained very stable prices for many years, but Minnie
has noticed that the cost of doors has been rising steadily for the past few years. She is
concerned that, given the company’s current accounting methods of basing its cost on the most
recent doors purchased, this will result in a much lower net income than in the past. The most
likely reason for her concern is that Double Entry has apparently been using:
356. Minnie knows that Double Entry has a lot of short-term debt coming due in the next year,
and wants to make sure that the company will have the ability to make the required payments.
Given a troubling downturn in construction activity over the past couple of months, she is not
confident that Double Entry can count on selling its current inventory of doors before the debt
comes due. Which of the following ratios would be most relevant to Minnie?
357. Explain the differences between managerial and financial accounting, and give examples
of the types of problems and issues examined by each of these areas of accounting.
358. Discuss the role of an independent auditor. Provide information about the types of
accounting activities they perform and the recent laws that have emerged to help guide them as
they do their job.
359. Thoroughly describe each of six parts of the accounting cycle.
360. What is the difference between a journal and a ledger? How are journals and ledgers
incorporated into the accounting cycle?
361. Explain the meaning of the fundamental accounting equation and its relation to the
balance sheet. If it is helpful, create an example using numbers.
362. Explain the difference between current, fixed, and intangible assets. Give two examples
of each of these different types of assets.
363. Identify the three key financial statements that corporations are required to prepare, and
describe the type of information found on each.
364. Identify and explain the differences between LIFO and FIFO inventory valuation methods.
What would be the difference in gross margin using FIFO versus LIFO?
365. What is ratio analysis? Explain the four different types of ratios and how each is used.
366. What is the difference between a profit (net income after taxes) on an income statement
and the cash balance reflected at the bottom of the statement of cash flows?