1.2 Dynamic Study Module

The Ray family owns a family business. Currently, the business's assets are $100,000 and its liabilities are $125,000. What is the Rays' owners' equity? a) $125,000 b) -$25,000 c) $100,000 d) $25,000

b) -$25,000

Which of the following best describes working capital? a) It is the ratio between net income after taxes and total owners' equity b) It is an indicator of liquidity because it represents a firm's current assets remaining after the payment of all of its current liabilities c) It is the ratio between net income after taxes and net sales d) It is a measure of a firm's profitability for each share of outstanding stock

b) It is an indicator of liquidity because it represents a firm's current assets remaining after the payment of all of its current liabilities

__________________________ refers to comprehensive U.S. legislation designed to improve the integrity and accountability of financial information. a) Sox (Sarbanes-Oxley) b) IFRS c) GAAP d) EBITDA

a) Sox (Sarbanes-Oxley)

Solo, a public accountant, is hired by Jack's Sporting Goods to review and evaluate the accuracy of the financial reports of the company. Which of the following activities is performed by Solo for Jack's Sporting Goods? a) auditing b) management accounting c) financial accounting d) bookkeeping

a) auditing

Which of the following best describes GAAP? a) It's the informal name of comprehensive U.S. legislation designed to improve the integrity and accountability of financial information b) It refers to standards and practices used by publicly held corporations in the United States and a few other countries in the preparation of financial statements c) It is an alternative and controversial method for reporting a firm's profitability d) It refers to the accounting standards and practices used in many countries outside of the United States

b) It refers to standards and practices used by publicly held corporations in the United States and a few other countries in the preparation of financial statements

Which of the following did the Public Company Accounting Reform and Investor Protection Act (Sarbanes-Oxley) do in 2002? a) It eased the restrictions requiring companies to document and test their internal financial controls and processes b) It required CEOs and CFOs to sign statements attesting to the accuracy of their financial statements c) It allowed corporations to make loans to their directors and executives d) It abolished the Public Company Accounting Oversight Board (PCAOB) to oversee external auditors, rather than letting the industry regulate itself

b) It required CEOs and CFOs to sign statements attesting to the accuracy of their financial statements

Which of the following statements is true of the matching principle? a) It is an accounting method of recording financial transactions that requires a debit entry and credit entry for each transaction to ensure that the accounting equation is always kept in balance. b) It requires that expenses incurred in producing revenue be deducted from the revenues they generate during an accounting period. c) It is an accounting method in which revenue is recorded when payment is received, and an expense is recorded when cash is paid. d) It is an accounting method in which revenue is recorded when a sale is made, and an expense is recorded when it is incurred.

b) It requires that expenses incurred in producing revenue be deducted from the revenues they generate during an accounting period.

__________________________ is the system a business uses to identify, measure, and communicate financial information to others, inside and outside the organization. a) management accounting b) accounting c) financial accounting d) financial management

b) accounting

To evaluate a company's performance and profitability, prospective and current investors and creditors rely on _______________________. a) accounting information b) financial accounting information c) bookkeeping d) management accounting information

b) financial accounting information

Which of the following is the major difference between management accounting and financial accounting? a) management accounting produces documents to aid investors and creditors while financial accounting helps interested parties inside of an organization to make decisions b) management accounting is used by employees inside an organization to make decisions while financial accounting is used by interested parties outside an organization to make decisions c) management accounting is done by hiring public accountants while financial accounting is done by accountants who are regular employees of a company d) management accounting is carried out once in a year while financial accounting involves preparing short-term reports to help with the day-to-day operations of a business

b) management accounting is used by employees inside an organization to make decisions while financial accounting is used by interested parties outside an organization to make decisions

Izumi works for a small clothing store. Her duties include tracking the income and expenses of the store and creating financial reports at regular intervals. In this scenario, which of the following activities is performed by Izumi? a) financial reporting b) auditing c) accounting d) data mining

c) accounting

________________________ is the area of accounting responsible for reviewing and evaluating the accuracy of financial reports. a) corporate accounting b) factoring c) auditing d) double-entry bookkeeping

c) auditing

Which of the following statements is true of accounting? a) it analyzes data to uncover data relationships and patterns b) it is not required in not-for-profit organizations c) it helps evaluate a business's current and expected financial status d) it is used only in large organizations with huge business volumes

c) it helps evaluate a business's current and expected financial status

If a firm has assets of $1,000,000 and liabilities of $250,000, what is the owners' equity in the firm? a) $1,000,000 b) $250,000 c) $1,250,000 d) $750,000

d) $750,000

Which of the following accounting standards systems do most U.S. firms use? a) double-entry bookkeeping b) International Financial Reporting Standards (IFRS) c) Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) d) Generally Accepted Accounting Principles (GAAP)

d) Generally Accepted Accounting Principles (GAAP)

Which of the following are the three major financial statements of a firm? a) The balance sheet, retained earnings, and the income statement b) The income statement, statement of cash flows, and current assets c) The balance sheet, current assets, and the statement of cash flows d) The balance sheet, the income statement, and the statement of cash flows

d) The balance sheet, the income statement, and the statement of cash flows

What is the difference between a profitability ratio and a liquidity ratio? a) a profitability ratio shows a firm's ability to pay its short-term obligations, whereas a liquidity ratio shows how well a company is generating profits b) a profitability ratio shows how well a firm is generating profits, whereas a liquidity ratio analyzes how well a company is managing and making use of its assets c) a profitability ratio shows how well a company is making use of its assets, whereas a liquidity ratio measures a firm's ability to pay its short-term obligations d) a profitability ratio shows how well a company is generating profits, whereas a liquidity ratio measures a firm's ability to pay its short-term obligations

d) a profitability ratio shows how well a company is generating profits, whereas a liquidity ratio measures a firm's ability to pay its short-term obligations

In _____________________________, each new transaction is captured and added to the previous transaction in a continuous chain. a) bitcoin b) distributed ledger c) cryptocurrency d) blockchain

d) blockchain

___________________________ is an intangible asset that includes a company's reputation, brand awareness and recognition, workforce skills, management talent, and even customer relationships. a) a current asset b) a current liability c) a fixed asset d) goodwill

d) goodwill

Which of the following is a profitability ratio? a) acid test b) quick ratio c) current ratio d) return on sales

d) return on sales