Chapter 17 Lecture Module Questions

The discipline that is involved in the recording, classifying, summarizing, and interpreting of financial events and transactions in an organization in order to provide management and other interested parties with the information they need to make good decisions is referred to as

accounting.

Analyzing a company's _______ ratio is one way in which an investor can tell if the company can pay off its short-term debts if there is a drop in sales revenue.

acid test

The four key types of ratios that investors monitor are liquidity ratios, leverage ratios, profitability ratios and _______ ratios.

activity

The balance sheet shows liabilities of $5,000,000 and owners' equity of $5,237,000. According to the fundamental accounting equation

assets equal $10,237,000. (The fundamental accounting equation states that: assets = liabilities + owners' equity. Substituting the information provided, assets ($10,237,000) = liabilities ($5,000,000) + owners??? equity ($5,237,000))

Leverage ratios are used to understand how much the company relies on _______ to fund its operations.

debt

An accounting system would be used for all of the following EXCEPT

determining the most profitable target market segment for the company's new product line.

An important tool for investors used in determining the value of a stock is the amount of net income that "belongs" to each share of common stock. This is called

earnings per share.

The financial statement that summarizes the revenue and expenses and resulting net income (or loss) over a specified time period is called the

income statement.

The measure of how quickly an asset can be converted to cash is referred to as its

liquidity.

Collins Enterprises is building a new manufacturing facility and has taken out a 30-year mortgage with Frontier Financial in the amount of $350,000 to finance the project. This mortgage would be shown as a(n) _______ on the company's balance sheet.

long-term liability

According to the fundamental accounting equation, the value of assets the firm owns equals the amount of money the firm owes to others plus

owners' equity.

Most of the financial information about an organization is based on information generated from accounting records. The reports and financial statements prepared by accountants

provide information that can be used by decision-makers both inside and outside the organization.

For years Microsoft did not pay dividends to its shareholders. Instead it held back these profits to be used for future growth or expansion. These undistributed profits are referred to as

retained earnings.

Cole is an accountant with a large public company. As an accountant, his responsibilities include

summarizing and interpreting financial information needed by his firm's managers.